Macroeconomics, Week 6 notes
Macroeconomics, Week 6 notes econ 22061-002
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This 2 page Class Notes was uploaded by Garrett Anderson on Monday February 22, 2016. The Class Notes belongs to econ 22061-002 at Kent State University taught by Dr. Rohlin in Winter 2016. Since its upload, it has received 23 views. For similar materials see Macroeconomics in Economcs at Kent State University.
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Date Created: 02/22/16
Chapter 10: Gross Domestic Product (GDP) 2 Definitions: 1) Measures total income of everyone in the economy. 2) Measures total expenditure on the economy’s output of Goods & Services Should memorize this definition! GDP: The market value of all final Goods & Services produced within a country in a given time period. Market value: Needs to be bought or sold housework is not included Fina : No intermediate goods. The whole car is sold is GDP, not the steel that is made. Goods & Services: Includes tangible goods (things you can touch such as a bike) and intangible things (things you can’t touch such as phone service). Produced: Currently produced goods. Used stuff does not count. It counts when it is produced. When a used car is sold, it doesn’t count. Only when the car is made, is when it counts. Within a country: It doesn’t matter who made it, if it’s in that country it counts as that country’s GDP. In a given time period: Quarterly or every 3 months. U.S (17.968) and China (11.385) has the largest GDP. Y (GDP) = C + I + G + NX (ExportsImports) C = Consumption (70% of our GDP) Total spending by household on Goods & Services Included as rental payment for apartment I (Business) = Investment Total spending on goods that will be used in the future to produce more goods. This is not stocks or wages. It is businesses buying other stuff. Capital equipment (tools, machinery, computers) Structures (factors, office buildings) Inventory (goods that are produced but are yet to be sold) G = Government purchases All spending on Goods & Services purchased by the Gov’t. Does not include Transfer Payment such as social security or welfare. NX = Net Export (Exports – Imports) Take out the stuff that wasn’t bought in America. A. Debbie spends $400 to buy her husband dinner in Boston. GDP goes up by $400 because consumption goes up by $400. B. Sarah spends $2000 on a laptop for her business that was built in China. I increase by 2000 but Import will go up or Net Exports will go down. C. Jane spends $800 on a computer for her business that was built in U.S but it was last year’s model. Nothing changes. D. GM builds 10 mil cars but only 940 mil sold. Consumption increase by 940 mil and Investment (Inventory) increases by 60 mil. Real vs. Nominal GDP Nominal value of outputs using current prices (not corrected for inflation) Real values output using prices at a base year (correcting for inflation) *Remember inflation in the general rise in prices* Pen Busines TR/ Real GDP (Base) 2015 $1 2000 $2000 $2000 2016 $2 1600 $3200 $1600 Real GDP = Quantity times base year. Nominal = Price times quantity One way to measure inflation: GDP Deflator = (Nominal GDP / Real GDP) * 100 Nominal GDP = Real GDP = Base year GDP Deflator (Consumer Price Index): Percent change = (NewOld) / Old * 100 Year Nom G % Change 2011 6000 6000 100 2012 8200 7200 113.89 13.89% 2013 10500 8000 131.25 15.24%
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