Macro Chapter 10 Notes
Macro Chapter 10 Notes EC 111
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This 4 page Class Notes was uploaded by Carter Cox on Monday February 15, 2016. The Class Notes belongs to EC 111 at University of Alabama - Tuscaloosa taught by Zirlott in Spring 2015. Since its upload, it has received 30 views. For similar materials see Principles of Macroeconomics in Economcs at University of Alabama - Tuscaloosa.
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Date Created: 02/15/16
Macroeconomics Chapter 10 Notes Income and Expenditure - Gross Domestic Product (GDP) o Measures the total income of everyone in the economy o Measure the total expenditure on the economy’s output of goods and services - For the economy as a whole income is equal to expenditure o For every dollar a buyer spends is a dollar of income for the seller The Circular Flow Diagram - Factors of Production o Are inputs like labor, land, capital, and natural resources - Factor Payments o Payments to the factors of production like wages and rent What this Diagram Omits - The government o Collects taxes, buy goods and services - The financial system o Matches savers supply of funds with borrowers demand for loans - The foreign sector o Trades goods and services, financial assets, and currencies with the country’s residents Gross Domestic Product…… - Is the market value of all final goods and services produced within a country in a given period of time o Goods are valued at their market prices (Market Value) All goods measured in the same units such as dollars in the US and pounds in England Things that don’t have a market value are excluded like homework, housework, and cooking which you all do by yourself - Is the market value of all final goods and services produced within a country in a given period of time o Final Goods- intended for the end user Only includes price of item as a whole The ford trucks costs $26,000 not $2,000 for each individual part o Intermediate Goods- used as components or ingredients in the production of other goods - Is the market value of all final goods and services produced within a country in a given period of time o Tangible goods DVD’s, mountain bikes, beer o Intangible goods Dry cleaning, concerts, cellphone service - Is the market value of all final goods and services produced within a country in a given period of time o GDP includes currently produced goods, not goods produced in the past Only current goods Used on eBay, used textbook and used car are not included - Is the market value of all final goods and service produced within a country in a given period of time o GDP measures the value of production that occurs within a country’s borders whether done by its own citizens or by foreigners located there Doesn’t matter who the company is owned but where it is produced does American companies produced items in different countries doesn’t count in US GDP - Is the market value of all final goods and services produced within a country in a given period of time o Usually a year or a quarter (3 months) Components of GDP - GDP is total spending - Four Components o Consumption © o Investment (I) o Government Purchases (G) o Net Exports (NX) - Y= C + I + G+ NX Consumption - Total spending by households on goods and services o Spent by yourself - Housing Costs o For Renters Consumption includes rent payments and is included in GDP o For Homeowners – lives in house Consumption includes the imputed rental value of the house, but not the purchase price or mortgage payments Investment - Total spending on goods that will be used in the future to produce goods - Includes spending on o Capital equipment (machines, tools, technology) o Structures (factories, office buildings) o Inventories (goods produced but not yet sold) o Houses (called residential fixed investment, has to have never lived in house, so brand new) - Investment does not mean the purchase of financial assets like stocks and bonds Government Purchases - is all the spending on the goods and services purchased by government at the federal, state, and local events. - They exclude transfer payments such as Social Security or unemployment insurance benefits - Not purchases of goods and services Net Exports - NX= exports – imports - Exports represent foreign spending on the economy’s goods and services o Foreign people buying our goods - Imports are the portions of consumption, investment, and government purchases that are spent on goods and services produced abroad o US buying goods from other countries Real VS. Nominal GDP - Inflation can distort economic variables like GDP, so er have two versions of GDP o One is corrected for inflation, the other is not - Nominal GDP o Values output using current prices o Is not corrected for inflation o Current output and current prices - Real GDP o Values output using the prices of a base year o Corrected for inflation o Current input and base year price is fixed GDP Deflator - Measure of overall level of prices - GDP= 100 x (nominal GDP/ real GDP) Why do we care about GDP? - Having a larger GDP enables a country to afford better schools, a cleaner environment, health care - Many indicators of the quality of life are positively correlated with GDP o Life expectancy o Literacy o Internet usage and technology Chapter 10 SUMMARY Gross Domestic Product measures a country’s total income and expenditure The Four spending components of GDP include: Consumption, Investment, Government Purchases, and Net Exports Nominal GDP is measured using current prices. Real GDP is measured using the prices of a constant base year and is corrected for inflation GDP is the main indicator of a country’s economic well- being, even though it is not perfect
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