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by: Caroline Wilderman Sr.


Caroline Wilderman Sr.
GPA 3.97


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Class Notes
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This 14 page Class Notes was uploaded by Caroline Wilderman Sr. on Thursday September 17, 2015. The Class Notes belongs to THE 2000 at Florida State University taught by Staff in Fall. Since its upload, it has received 29 views. For similar materials see /class/205376/the-2000-florida-state-university in Theatre at Florida State University.




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Date Created: 09/17/15
Gwartney Stroup Sobel and Macpherson Economics Pn39vate and Public Choice 12th ed FullengthTexti Pan 3 Chapta 7 MMMOnly Text Pan 3 Chapta 7 W n hsz Gummy mmsmn Ruse Sane amp om thzmn Shdzs Milkmede ammmedby hsz Gummy M th msan amp Chains 5mm GDP 7 A Measure ofOuzput GDP 7 A Measure of Output GmssDommit Pmmm GDP The market value 0mm goods and senmes u m a conn s cm penod usually ayear GDP 15 the most wxdely used 1nd1cator of economlcperformance dunng a pecl c Gwartney Stroup Sobel and Macpherson Economics Pn39vate and Public Choice 12th ed What Counts Toward GDP Only rm goods and services count Sales atmtermedAate stages of production are the hshusehgood Includmg goods at mtermed ate stages of production woul esultm double eouhhhg use hm ts mu addedmthz mam meetheedqu hem Wham hum mquot she 1 rm in What Counts Toward GDP What Counts Toward GDP7 Only transactions mvolvmg production eouht Financial mm Income nunsm are excludzdbecause they do not re ect hoh actual produ Only production within the geagrugzhir bardzrs ofthe eou t is eouhted Only those goods produced during the currentpen39ad are eouhted 39T39hu produced duhhg earhehyears are hot eouhtedm thts year39s GDP C W Q Mm i 39mquotquot quotquot DollaIS are the Common Denominator for GDP GDP 15 measured m dollars amount the purchaser pays for the good s s semees produced duhhg the year is summed m dollar terms to obtam the must GDP Gwartney Stroup Sobel and Macpherson Economics PIivate and Public Choice 12th ed Questions for Thought 1 Indicate how each ofthe followlng activities will affect GDP a You pay some per month to lease an apartment while attending sehool Yo p e W haye ear trouble and have to pay arepair shop 1500 to fix the transmission ofyour ear d You pay 5100to purehase 100 shares of Microsoft stoek 50 per share for the stoek plus a 100 brokerage fee e You sell your 100 shares ofMlcrosoft stoek purchased for 5 000 for 6000 minus a 100 brokerage fee commotion mm a Questions for Thought 1 Indicate how each ofthe followlng activities will affect GDP cant f Your aunt sends you 500to help Wth your eollege expenses for a faculty member in the dormitory 2 Why lsn tthe purchase ofan intenmediate good llke steel used to build automobiles and the purchase ofthe new automobile ltselfboth included in GDP7 Gwartney Stroup Sobel and Macpherson Economics PIivate and Public Choice 12th ed Two Ways ofMeasuIing GDP Dal rgwor Dalhg dawgf of gaads GDP ennorr r nn Eo 39d s GDPis a measure ofboth output and income Thu DP can be denyed by totsbng the expenditures on finalrusergoods and seryrees produeed durrng the year ans rs called the apequot 39nmz agpmar Alternatively GDP can be calculated by suppbers and the rndreet eost ofproducmg the goods and seryrees re a 39 This is called the me castIncome 1111th Mm I mnnnrmrm The Expenditure Method of Measuting GDP s d foreigners wnen calculated by tnrs method there are four eornponents of GDP consumph on purchases gross pnyate investment ncludmg mvembnes goyernrnent purchases consumption and mveszmem net exports Exports mus rmpms Resource CostIncome Method of Measuting GDP lemme CostInmmzAppmach Includingpm ts generated by the product on of goods and seryrees dunng tine perrod The dreet eost rneorne eornponents of GDP rn rents rntere corporate pro ts Sum of tnes animal income C Gwartney Stroup Sobel and Macpherson Economics Pn39vate and Public Choice 12th ed esource Costlcome eLhod of Measunng GDP lemme CostInmmzApproach can Not all h ome payment to aresource supplier To get GDP we need to aeeouht for 3 other factors Indinzclbuxinexx taxes Taxes that mcrease the rms production eosts andtherefore nal phees Depnzcia an The eost ofwear andtear oh the maehmes and other capital assets used to produce oods andsemees Nellncame aFanzigners goods wtthm the borders ofthe U s mmus the meomeAmeheans am abroad Resource CostIncome Method of Measunng GDP en denv ed by the lemme cm Income Appmeeh GDP 15 equal to the sum of hahoha1 meome Employee carrpensatmn segfemplaymem dme tents Interest Earparate pm ts het meome offerelgners Two Ways of Measunng GDP A Summary The two methods of ea1eu1atmg GDP are u anzed below swam Wrench elem seam 4mm Persond mesmpoehexheedmm geese mm Emylnvee Commmnn me mad mmm mmm Imam urse kmylnygd Rem Pests Guwmmcmm h and gees mmquot Mm on m cosntnms Heme sigma And seems Immubusmzss taxe 7 G Anddzyncucm Gwartney Stroup Sobel and Macpherson Economics PIivate and Public Choice 12th ed Therela vesizesufthemeiuieumpuueitsufcpp usually uctuate Within a fauly nmuwrznge The averagepmpumunufeach u s eum uhehtuunhg the ZUEIKVZEIEI penudis shuwn alume fur nth the expendina39e and resolute castincome mad i Mrs Questions for Thought 1 which ofthe following is GDP desigied to measure7 b roducedm ayear he iueome generated and eosts iheuned e Both a and b 2 is derived by the aipmditure approacm what is the largest component ofGDP when it is dawed by the incomeecost approach7 Real and Nominal GDP Gwartney Stroup Sobel and Macpherson Economics PIivate and Public Choice 12th ed Real and Nominal GDP m1 means adjusted for m atton Pn39czin zxm are use to adjust mcome and output data for the effects of in ation Apn39ce index measures the eost ofpurchasmg amarketbasket by bundle ofgoods at a pomt m trme reiatrve to the eost of purchasing the same market basket dunng an earher reference or bars penod atemo mm 2 GDP De ator Two Key Price Indexes 1 Comumer Price Index Two Key PIice Indexes Consumer Fri 2 mm c measures the rmpaet of pne e ost ofatypical PD changes on the e purehasedby households GDPDz or desrgrredto measure the ehange m the average pnee ot the market basket ot goods metuoeo in GDP at The GDP de ator is a broader price index than the CPI Gwartney Stroup Sobel and Macpherson Economics PIivate and Public Choice 12th ed What is In ation In ation ls an rncrease ln the general level ofprlces It ls typrcally calculated annually n canb CPI or the GDP de ator alumb mm CPI and GDP De ator 19962006 cpl mu me 0th mu ate Ya m n m 2000 100 9 Based on dlfferent market baskets and proeedures they yreld srrrular esarrrates ofthe rate ofln ahon Using the GDP De ator to Derive Real GDP Gwartney Stroup Sobel and Macpherson Economics Private and Public Choice 12th ed Using the GDP De ator to Derive Real GDP The formula for convening nominal GDP inlo real GDP in period 1 prlces is Real GD Nummal GDsz Data on both money nomlnal GDP and prlce changes are essentlal for meanlngful Compansons of ouapulbetween two lee penods g quota up Mans Using the GDP De ator to Derive Real G increased by 34 9 But w en the 2006 GDP is de ated to account for prlce increases we can see that real GDP increased by only 16 3 Namlml GDP Price index own mm in Real GDP Pmmon my minnow mm mm M 9 DP Between 2000 and 2006 nominal GDP q i i mm Converting Earlier Figures into Current Dollars Sometlmeswewlllwantto make real data 2g power othe dollar durlng the current year Thls can be done by ln atln quot the data for The formula for Convemng the figures for an earlier year Into curran 1101mm is F1 gumamm Figureimns pnce maximum prnces haverlsm ths wlll ln ate the data f0 r the current purchasing power othe dollar c gt KmW Gwartney Stroup Sobel and Macpherson Economics PIivate and Public Choice 12th ed Questions for Thought 1 What do prlce lndexes measure7 2 What ls the dlfference between the CPI and the ths year were hrgher than they were last yea 3 The CPIwas 2101n 2007 Com ared to 00m 1983 Suppose that the pnce o a tlcket at a local movle theaterrose from 4 to 8 between 1983 and 2007 Dldtl rncrease or deerease7 Calculate the 1983 tlcketprlce measured In 2007 dollars ammo mm Questions for Thought 4 Use the followlng data to answerthls questlon Nominal GDP GDP de atur millms 91 21111171 17 1169 1243 1319 a Caleulate the real GDPm 2004 2005 and 2006 measuredm 2000 dollars b between 2004 and 20057 What was the pereent change between 2005 and 20067 e GDP de atonn 2005 and 20067 ShOItcomings and Strengths of GDP as a Measuring Rod Gwartney Stroup Sobel and Macpherson Economics Private and Public Choice 12th ed It probably understates outputrnereases because of the problem of estrrnatrng It does not adjust for harmful slde streets g quota up mm t39nr39r Differences in GDP Over Time US PM Caan cop 0mm u cacao mm 35759 Percuprtacnp lsGDP nmuedbypapuluuan Asshawnherethereulznnocoppercuprtaameus wasmarethansxurnestherrgurerarlazn ngulrsth p r C Per Capita GDP Comparisons Across Time Periods Aswas shown in the prevrous exhrbrt real U 3 per caprta GDP has rncreased substantrally ovethe past 76 ears Compared to earlrer errods current GDP ls probably brased upward because rn re output now takes place in the nlalaet sector and less in the household sector However rt ls also probably brased downward because of fallure to adjust for rncreased lersure lmprov ements m the work envrronrnent and the rntroductron of lmproved products and new technologres The drrectron othe overallbras ls uncertarn C mmmr39 39 Gwartney Stroup Sobel and Macpherson Economics PIivate and Public Choice 12th ed GDP as a Measuring Rod In sprte ofiLs shortcomrngs the eyrdence rndrcates that real GDP per person rs a broad rndrcator of living standards As rea1 per eaprta GDPm the Unrted States me the uahty ofmost goods has rnereased whrie the amount ofwork purchase has dedmed tmd r the Unrted States and other eountnes life expectancy andiersure tame have gone up whrie hteraey and infant mortahty rates have gone down a W I mmm39m39m39m The Great Conuibmion of GDP However e great contrrbutronquot of GDP rs rts abrhty to measure shortrterm uctuatrons in output Yearrtoryear and qunvfevrforquw zv changes measure of what rs happening to the rate ot output Questions for Thought 1 when making ome and GDP compansons across trme penods why rs rt rmportant to adju tr t 2 Ifnommal GDP dunng a year rncreased by 7 while the GDP de ator rose by 10 whathappenedto real GDP7 a El 3 Ithe GDP de ator rs currently 130 compared La to the 2000 baseyear of100whatdoes the w 130 during the Currentyearmeam D 4 G P food preparatron cleanrng and laundry within Lhehousehold Why nott Is GDP a sexrst mea e sur Contributions of w omen relatw e to men7 I run rquot Gwartney Stroup Sobel and Macpherson Economics PIivate and Public Choice 12th ed Questions for Thought 5 On Sept 11 2001 termrlsts crashed 2 planes lnto the World Trade Center ln New York lawn collapse whlch ofthe followlngbest lndlcates how GDP was ln uenced by the damages from a The damage from the attack was subtracted rom eleanup were added b Net er the damages from the attaek nor the e No adjustment was made for the damages from the attack whlle the expendltures from the eleanup were addedto GDP g quota up mm t39ne39r Questions for Thought 6 whlch ofthe followlng are lncluded ln GDP7 a the value of goods produced ln the underground economy 0 thevalue oflelsure c lncreas s ln the value ofhouslng and flnancla assets d depreclatlon ln the value ofreal assets such as equlpment and bulldlngs e thevalue ofs Ices such as food preparathn and house cleamng that we provlde for ourselves Questions for Thought 7 Your father tells you he earned 1 50 per hour when he was 16ln1969 ou made 6 00 per hourwhen you were 16 ln 2006 Gle that the CPI was 36 7ln1969 and 201 6 ln 2006 Whlch ofthe followlng ls the 2006 equlvalentofyour fatha s hourly earnngswhen he was 167 a 3 02 01 10 40 Gwartney Stroup Sobel and Macpherson Economics Pn39vate and Public Choice 12th ed End Chapter 7


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