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ECON111 Macroeconomics Chapter 10 Notes

by: Lauren Heller

ECON111 Macroeconomics Chapter 10 Notes Econ 111

Marketplace > University of Alabama - Tuscaloosa > Econ 111 > ECON111 Macroeconomics Chapter 10 Notes
Lauren Heller
GPA 4.0

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About this Document

These notes were taken from the professors lecture and covers chapter 10.
Kent 0. Zirlott
Class Notes
econ111, Macroeconomics, Macro, Econ, Economics, chapter 10, GDP, Gross Domestic Product
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This 3 page Class Notes was uploaded by Lauren Heller on Wednesday February 17, 2016. The Class Notes belongs to Econ 111 at University of Alabama - Tuscaloosa taught by Kent 0. Zirlott in Fall 2016. Since its upload, it has received 23 views.


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Date Created: 02/17/16
Macro- Chapter 10  Gross Domestic Product (GDP)- measures total income of everyone in the economy  Also measures total expenditure on the economy’s outputs of goods and services  For the economy as a whole, income equal expenditure because every dollar a buyer spends is a dollar of income for the seller  The circular-flow diagram  Now added GDP to it  What this diagram omits  The government  Collects taxes, buys goods and services  The financial system  Matches savers’ supply funds with borrower’s demand for loans  The foreign sector  Trades goods and services, financial assets, and currencies with the country’s residence  GDP includes the market value of all final goods and services produced within a country in a given period of time  Market value- goods are valued at their market prices, so:  All goods measured in the same units (ex. Dollars in the US)  Things that don’t have market value are excluded (ex. Homework)  Final goods- intended tor the end user  Intermediate goods- used as components or ingredients in the production of the good (excluded)  GDP only includes finals good because they already embody the value of intermediate goods used in their production  Goods and services- GDP includes tangible goods (ex. DVDs, mountain bikes, beer) and intangible services (dry cleaning, concerts, cell phone services)  Produced- GDP includes currently produced goods, not goods produced in the past  Within a country- GDP measures the value of production that occurs within a country’s borders, whether done by its own citizens or by foreigners located there  In a given period of time- usually a year or a quarter (three months)  The components of GDP  GDP is total spending  Four components:  Consumption (C)  Investment (I)  Government Purchases (G)  Net Exports (NX)  These components add up to GDP (denoted Y)  Y = C + I + G + NX  Consumption- is total spending by households on goods and services  note on housing costs:  For renters, consumption includes rent payments  For homeowners, 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 more goods  Includes spending on:  Capital equipment (machines, tools, technology)  Structures (factories, office buildings)  Inventories (goods produced but not yet sold)  Houses (called residential fixed investment)  Never been lived in, brand new, recently constructed  GDP does not men the purchase of financial assets like stocks and bonds  Government Purchases- all spending on the goods and services purchased by the government at the federal, state, and local levels  Government purchases excludes transfer payments such as Social security or unemployment insurance benefits  Net Exports- exports – imports  Exports represent foreign spending on the economy’s goods and services  Imports are the portions of C, I, and G that are spent on goods and services produced abroad  Real vs. Nominal GDP  Inflation can distort economic variables like GDP, so we have two versions of GDP, one is corrected for inflation, the other is not  Nominal GDP- values output using current prices  It is not corrected for inflation  Calculate by:  Current price X current quantity  If more than one good add them together  Calculate percent change new – old / old  Real GDP- values output using prices of a base year  Is corrected for inflation  BASE YEAR ALWAYS GIVEN  Calculate by:  Base year price X current quantity  If more than one good add them together  Calculate percentage change by new – old / old  The GDP deflator- is a measure of the overall level of prices  100 X (nominal GDP / Real GDP)  have to multiply by 100  one way to measure the economy’s inflation rate is to compute the percentage increase in the GDP deflator from one year to the next  GDP deflator for the base year will ALWAYS be 100  GDP and Economic Well-Being  Real GDP per capita is the main indicator of the average person’s standard of living  But GDP is not a perfect measure of well-being  GDP does NOT value  The quality of the environment  Leisure time  Non-market activity (child care a parent provides his or her child at home)  An equitable distribution of income


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