Notes week 4
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This 3 page Class Notes was uploaded by Michael Notetaker on Tuesday March 15, 2016. The Class Notes belongs to ECON103011 at University of Delaware taught by Professor Abrams in Winter 2016. Since its upload, it has received 21 views. For similar materials see Macroeconomics in Economcs at University of Delaware.
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Date Created: 03/15/16
Chapter 7 Notes National income accountingthe techniques used to measure the overall production of a country s economy GDPdefines output as a dollar value for all final goods and services produced within the borders of one country Intermediate goodsproducts that are purchased for resale or further processing or manufacturing Final goodsproducts that are purchased by their end users Multiple countingincluding in the GDP the value of intermediate goods as well as final goods Value addedthe market value of a firm s output less the value of the inputs the firm has bought from others the value a company has added to a good Public transfer paymentsnot included in GDP government payments for welfare and social security Private transfer paymentsnot included in GDP transfer of money from one individual to another Stock market transactionsnot included in GDP buying and selling stocks Expenditures approachview GDP as the sum of all the money spent in buying all the goods produced 0 Personal consumption expendituresthe expenditures of a household on durable and nondurable goods I Durable goodsproducts that have expected lives of three years or more 10 of PCE I Nondurable goodsproducts with less than three years expected life 30 ofPCE I Servicesthe work done by lawyers hair stylists doctors mechanics 60 of PCE 0 Gross private domestic investmentall final purchases of machinery equipment and tools all construction changes in inventory and money spent of research and development all included in GDP 0 Net private domestic investmentonly investments in the form of added capital gross investment depreciation 0 Government purchasesexpenditures for goods and services that government consumes in providing public services expenditures for publicly own capital schools and highways and government expenditures on RampD 0 Net exports exports imports 0 GDP personal consumption expenditures gross private domestic investment government purchases exports imports Income approachview GDP through understanding the income and rent of the production of all the goods 0 Compensation of employeeswages and income paid by business to employees 0 Rentsincome received by households and businesses that supply property resources o Interestmoney paid by private businesses to the suppliers of loans used to purchase capital 0 Proprietors incomenet income of sole proprietor partnerships and other unincorporated businesses 0 Corporate profitsearnings of corporations 0 Taxes on production and importssales tax excise tax business property tax license fees and custom duties 0 National incomethe total of all sources of private income plus government revenue from taxes on production and imports 0 Consumption of fixed capitalhuge depreciation charge made against private and publicly owned capital each year money lost to the quotconsumptionquot or use of capital Net domestic product GDP consumption of fixed capital GDP adjusted for depreciation Personal incomeincludes all income receive whether earned or unearned Disposable incomepersonal income less personal taxes Nominal GDPreal GDP adjusted to one specific year s value of all goods 0 Price indexmeasure of the price of a specified collection of goods and services in a given year as compared to the price of an identical collection of goods and services in a reference year 0 Base yearthe year that all prices of the collection of goods are based off of 0 Price index price of market basket for a specific year price of same market basket in base year 0 Real GDP nominal GDP price index Chapter 8 Notes Economic growthan increase in real GDP or GDP per capita over some period of time Real GDP per capita real GDP population Rule of 70provides a quantitative grasp of the effect of economic growth 0 Approximate numbers of years required to double GDP 70 annual percentage rate of growth Growth has lead to improved goods and services added leisure and has had effects on the environment and quality of life Modern economic growthsustained ongoing increases in living standards that can cause dramatic increases in the stand of living within less than a single human lifetime brought about by the industrial revolution in the 1900 s Leader countriescountries that develop and use the most advanced technology Follower countriescountries that use advanced technology that was developed by leader countries Industrial structures that promote modern economic growth 0 Strong property rights 0 Patents and copyrights 0 Efficient financial institutions 0 Literacy and widespread education 0 Free trade 0 Competitive market system Supply factorsincreases in the quantity and quality of natural and human resources increases in supply of capital goods and improvements in technology Demand factorto actually achieve higher production potential created when the supply factors increase of improve households businesses and the government must also expand their purchases of goods and services so as to provide a market for all the new output that can potentially be produced Efficiency factorto reach its full production potential an economy must achieve economic efficiency as well as full employment Labor productivitymeasured as real output per hour of work total output divided quantity of labor employed to produce it Laborforce participation ratethe percentage of the workingage population actually in the labor force Growth accountingthe bookkeeping of the supply side elements such as productivity and labor inputs that contribute to changes in real GDP over some specific period of time o Technological advanceaccounts for 40 of productivity growth innovative as well as managerial advances 0 Growth of capital30 of productivity growth includes infrastructure highways and bridges public transit systems wastewater treatment facilities water systems airports educational facilities and so on 0 Education and training15 of productivity growth includes human capital the knowledge and skills that make a person more productive o Economies of scale and resource allocation15 of productivity growth Information technologynew and more efficient ways of delivering and receiving information through the use of computers WiFi wireless phones and the Internet Startup firma firm focused on creating and introducing a particular new product or employing a specific new production or distribution method Increasing returnsa situation in which a given percentage increase in the amount of inputs a firm uses leads to an even larger percentage increase in the amount of output the firm produces Network effectthe idea that each new product sold has an increased value ex cell phones and the Internet Learning by doingperfecting new production techniques
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