Chapter 8 Notes
Chapter 8 Notes Econ 253-101
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This 4 page Class Notes was uploaded by Kayla Notetaker on Friday September 4, 2015. The Class Notes belongs to Econ 253-101 at Marshall University taught by Dr. Yuanyuan (Catherine) Chen in Fall 2015. Since its upload, it has received 126 views. For similar materials see Principles of Macroeconomics in Economcs at Marshall University.
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Date Created: 09/04/15
Macroeconomics 253 Chapter 8 Lecture GDP GDP Gross Domestic Product the market value of all final goods and services produced during a period of time typically one year 0 GDP is measured using market values NOT quantities Measuring Total Production 0 GDP includes only market value of final goods 0 Final goodservice good or service purchased by the final user Ex truck a sandwich iPod 0 Intermediate goodservice good or service that serves as an input into another good or service Ex tire for a truck bread for a sandwich headphones for iPod GDP Expenditure Approach 0 Step 1 count individual expenditures 0 Follow this formulaExpenditureProduct x Quantity or E P x Q Product Quantity Price per Unit Expenditure Eye Exams Eee 100 Qee 50 Pee 5000 PeeXQee Pizza Epz 80 sz 10 sz 800 szprz Textbooks Ex 20 th 100 Ptx 2000 PtxXth Paper Epa 2000 Qpa 010 Ppa 200 PanQpa Assume all good are final unless told otherwise 0 Step 2 Add to get a total 0 GDPZE E66 Epz Etx Epa 5000 800 2000 200 8000 Gross Domestic Product Measures Total Production 0 Consumption c spending of Households HHs on goods and services excluding spending on new houses don t confuse Capital C with consumption c I Durable Goods goods that last long periods of time Ex cars computers etc I NonDurable Goods goods that do not last long Fireworks food clothing etc I Services no tangible itema task done for you electricians painters etc 0 Investment I spending by firms on new factories offices machinery and adds to inventories includes spending by HHs on new houses I Business Fixed investment spending on new factories offices etc to produce I Residential Investment HHS spending on houses I Change in Business Inventories goods that have been produced but not sold 0 Ex In the first quarter say a business has 80 units not yet sold In the second quarter they have 100 units none yet sold The change in inventory would be Q2 Q1 or 100 80 which would equal 20 Macroeconomics 253 0 Government Purchases G spending by federal state and local governments on goods and services Ex Teacher salaries highways bridges etc I Transfer Payments by governments to HHs for which the government does NOT receive a good or service transfer payments are NOT included in the GDP I Social Security SS payments to retired andor disabled unemployment insurance payments to unemployed workers 0 Net Exports NX exports minus imports I Exports EX goods and services produced in the domestic country in our case the US and shipped to foreign firms HHs and governments I Imports IM goods and services produced in foreign countries sold to the domestic country s US rms HHS and governments Business Fixed Residential Change in inventory T Equation for GDP C I NX Y Accepted Exports Imports symbol for GDP Durables Federal Nondurables State Serv1ces Local Does GDP Measure Everything Does it measure what we want it to 0 Shortcomings in GDP When the BEA calculates GDP it does NOT include production in the home and production of underground economies 0 HH production goods and services people produce for themselvesnot bought and sold in markets Ex mechanic fixing hisher own car 0 Underground economy buying and selling goods and services that is concealed from the government I Conceals buying and selling for three main reasons 0 Avoid taxes 0 Avoid government regulations 0 Illegal goodsservices I It is estimated that if they were measured in the GDP HH products would be 10 of the GDP and underground economy productions would be at 8 0 Shortcomings in GDP as a measure of WellBeing 0 While GDP is meant to measure a country s population it is also used to measure a country s wellbeing Increases in GDP lead to increases in wellbeing but it s not a perfect indicator Leisure is not included in the GDP Also GDP is not adjusted for pollution or other negative effects of production I Ex Cigarette production is included in the GDP but the cost of lung cancer from smoking is not Macroeconomics 253 0 Crime and other social change also have no effect on GDP 0 Overall one way to think about it is this GDP measures the size of the pie but not how the pie is divided Real GDP vs Nominal GDP 0 Nominal GDP value of final goods and services evaluated at the current yearcalculated by adding the current values of final goods and services 0 Real GDP value of final goods and services evaluated at base year pricescalculated by determining a base year and using prices from that year to find the value of goods and services in other years 0 If total spending rises from one year to the next one of two of the following statements M be true 0 The economy is producing a larger output of goods and services OR o Goods and services are being sold at a higher price Calculating Real GDP 0 As stated above you calculate Real GDP by adding the current year s values of nal goods and services 0 Step l Add individual expenditures Assume the base year is 2009 Ex 83 in the textbook 2009 2015 Product Quantity PriceU nit Quantity PriceUnit Eye Exams Eee 80 Qee 40 Pee 100 Qee 50 Pee Pizza Epz 90 sz 11 sz 80 sz 10 sz Shoes Esh 15 Qsh 90 Psh 20 Qsh 100 Psh 0 Step 2 Find the value of the goods and services listed using Quantities from 2015 and Prices from 2009 Product Quantity 2015 PriceUnit 2009 Value Eye Exams Eee 100 Qee 40 Pee 4000 Pizza Epz 80 sz 11 sz 880 Shoes Esh 20 Qsh 90 Psh 1800 YR 4000 880 1800 6680 If the base year is the current year then YRYN GDP De ator measure of price level calculated by dividing nominal GDP by real GDP then multiplying by 100 GDP Deflator Yn Yr x 100 If Nominal GDP Real GDP in base year than the value of the GDP De ator will always be 100 0 Price Level measure of the average prices of goods and services in economy 0 Is NOT the price of goods is an index of total prices Macroeconomics 253 If 0 GDP In ator m 100 then YN YR 0 GDP In ator is less than 100 then YN is less than YR 0 GDP In ator is greater than 100 then YN is greater than YR 0 GDP In ator is stays the same then YN and YR have the same growth rate 0 GDP In ator is declines then YN growth rate is slower than YR prices are decreasing 0 GDP In ator is increases then YN growth rate is m than YR prices are increasing GDP vs GNP Gross National Product GNP o The value of final goods and services produced by residents of US even if production is overseas EX If Ford builds a factory in the UK production goes to the USGNP and the UK GDP EX If Toyota builds a factory in the US production goes to Japan s GNP and the US GDP 0 National Income the value of womout equipment buildings etc known as depreciation or fixed capital When you subtract this value from GDP you re left with National Income 0 Personal Income received by HHs calculated by subtracting earnings of corporations and add in payments received by HHs from the government transfer payments 0 Disposable income personal tax payments personal income disposable income 0 PI is always greater than DPI
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