January 23 + January 26 (GDP)
January 23 + January 26 (GDP) CAS EC102
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This 6 page Class Notes was uploaded by Hanna Notetaker on Wednesday March 4, 2015. The Class Notes belongs to CAS EC102 at Boston University taught by Watson in Spring2015. Since its upload, it has received 116 views. For similar materials see Macroeconomics in Economcs at Boston University.
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Date Created: 03/04/15
Gross Domestic Product GDP 01262015 Measuring GDP 0 The Expenditure Method 0 Calculates GDP by adding up the value of expenditures on all nal goods and services in the economy 0 Personal consumption expenditures More than 23 comes from these Goods n Durable goods I Nondurable goods Services 0 Gross private domestic investment Nonresidential Fixed Investment n Plant and Equipment 0 Talking about businesses buying machinery tools equipment building commercial buildings like factories office buildings warehouses These can be shortened to plant and equipment 0 Plant buildings 0 Equipment tools 0 Intellectual property products 0 Things like software and copyrights a Housing 0 People invest in a house a Change in inventories 0 Additions to inventory are positive 0 Subtractions from inventory are negative 0 For the economy as a whole the government takes the inventories subtracts the negative from the inventories and got the net inventories Investment higher than consumption in China compared to United States 0 Government Purchases Transfer payments are not government purchases a They are not included in GDP I These include unemployment welfare When government gets a good or service in return for a purchase 0 Net Exports Things that we produce that people overseas buy A lot of what consumers buy aren t made here D We subtract off imports from exports 0 An important identity Y C G NX n Y GDP 0 Value of everything that s produced total output a C consumption a investment I G government purchases a NX net exports C G NX is the aggregate expenditure Per Capita GDP 0 Per Capita GDP Country s GDP Population o In 2013 GDP 168 T Population 317 M 2013 Per Capita GDP 168 T 317 M n 53000 per person Potential GDP Can t measure It s a guess an estimate not a real number An estimate of what GDP would have been if all factors of production eg labor and capital had been used at their normal rates It s a measure of the economy s capacity to produce under normal circumstances not its actual production Actual GDP can be higher or lower than potential GDP 0 Actual GDP is higher than potential GDP More people are working than normal for longer hours Factories are working double 0 Actual GDP is lower than potential GDP Not as many people are working as normal Machines aren t being used Gross Domestic Product GDP 01232015 Macroeconomics The total production of all rms and all consumers in the economy Characteristics of Macroeconomics 0 Time frame matters 0 Long run vs short run Long run a where major structural changes can happen in the economy a Time period long enough where all markets in the economy can reach equilibrium D All about economic growth Short run a Media focuses on the short run a Our focus tends to be on the short run I Where the economic uctuations happen 0 When the economy s not doing very well 0 When there s a recession 0 When the economy is doing very well a Business Cycle Fluctuations the ups and downs in the economy 0 When economy isn t doing well unemployment tends to be high 0 When economy is doing well unemployment is low but prices increase leading to in ation n Aggregate Demand 0 economy is strong aggregate demand is strong 0 Lots of consumers businesses government overseas want to buy stuff 0 When aggregate demand is weak the economy doesn t do so well 0 Because aggregate demand is so fundamental to how the economy forms there s something called demand management Refers to the attempts by the government to in uence aggregate demand Expectations matter They want to stimulate aggregate demand to boost aggregate demand when it s weak They want to but a damper on it when it seems too strong that it might cause in ation Monetary policy one class of policies that constitutes demand management 0 O 0 Done by the central bank Federal Reserve in the US Primarily concerned with affecting interest rates When interest rates are low it tends to boost aggregate demand people buy more stuff When interest rates go up they buy less stuff that dampens aggregate demand HscalpoHcy O 0 Has to do either with increasingdecreasing taxes or increasingdecreasing government spending After Obama came to power the idea was to increase government spending to stimulate aggregate demand that was the Obama Stimulus Package 0 People s economic nancial decisions are not only based on what s going on currently but also their expectations of what will go on in the future Greater complexitymore complex math Highly empiricalemphasis on data 0 Mathematical model 0 Empirical cast 0 They ll use statistics to test the model against the empirical Policy driven 0 Which policies are most affective o How much does the economy respond to changes in interest rates Gross Domestic Product GDP GDP is the market value of all nal goods and services produced within a country in a year O O O In order for a good or service to count in GDP there has to be a market based transaction money has to change hands Gifts don t count because you didn t buy a good or service Barter doesn t count 0 Final Goods and Services 0 O O 0 Cost of wheat to miller 050 Cost of our to baker 150 Cost of loaf to retailer 2 Price of bread on shelf 250 If we add up all these intermediate transactions the total is 650 Intermediate goods don t count because then we d be counting them multiple times We just look at the FINAL which is 250 Produced within a year 0 O O O 0 Has to be something that was made A piece of undeveloped land doesn t count because nothing was produced If Facebook issues new shares of stock nothing was produced only bits of the company were sold so it doesn t count as GDP Let s say a car was produced a car was purchased and sold in 2010 If I buy that car this year it doesn t count in this GDP because it wasn t produced in 2015 In real estate commission counts as GDP but not the actual price of the house 0 Within a country 0 Even though it s an American rm what Ford produces in Canada doesn t count as US GDP it counts as Canada GDP 0 Measuring GDP 0 Process called quotNational Income Accountingquot Calculated by the Bureau of Economic Analysis a division of the Dept of Commerce lssues the National Income and Product Accountants quotNIPAquot
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