Macroeconomics Chapter #5
Macroeconomics Chapter #5 eco 105
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This 3 page Class Notes was uploaded by Daniel Hong on Thursday October 1, 2015. The Class Notes belongs to eco 105 at Pace University taught by Mark Weinstock in Fall 2015. Since its upload, it has received 44 views. For similar materials see Principles of Economics: Macroeconomics in Economcs at Pace University.
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Date Created: 10/01/15
Chapter 5 Measuring a Nation s Production and Income Macroeconomics the study of the nation s economy as a whole and focuses on the issues of in ation o Microeconomics looks at things in a small perspective 0 Macroeconomics looks at things at a bigger perspective In ation sustained increases in the average prices of all goods and services 0 Prices of goods and services are going up Gross Domestic Product GDP the total market value of final goods and services produced within an economy in a given year 0 Does not include stocks and bonds these are more into finance 0 Only includes goods and services Intermediate Goods goods that are used in the production process but are not the final goods and services Example Flour is an intermediate good because it is used in the process to make baked goods But our is not the final step of the process it is only an ingredient The bread out of the oven is the final stage of the good Real GDP a measure of GDP that controls for changes in prices 0 Real GDP per capita Per Capita per person Nominal GDP the value of GDP in current dollars 0 Any other currency in the specific country Economic Growth sustained increases in the real GDP of an economy over a long period of time Economists use GDP by dividing it into four broad categories Each of these categories correspond to different types of purchases that are represented in GDP 1 Consumption Expenditures purchases by the consumers 2 Private Investment Expenditures purchases by firms 3 Government Purchasers purchases by federal state and local governments 4 Net Exports net purchases by foreign sector domestic exports minus domestic imports Components of GDP Consumption Expenditures purchases of newly produced goods and services by households Private Investment Expenditures purchased of newly produced goods and services by firms Gross Investments total new investment expenditures Depreciation reduction in the value of capital goods over a one year period due to physical wear and tear o Machines that were brand new in the beginning but then it time it wear down and becomes old Net Investments Gross investment minus depreciation Net Exports 0 Trade Deficit the excess of imports over exports 0 Trade Surplus the excess of exports over imports GDP Equation Y GDP C Consumption I Investments G Government Purchases NX Net Exports Y C I G NX 0 GDP Consumption Investments Government Purchases Net Exports Measuring National Income National Income the total income earned by a nation s residents both domestically and abroad in the production of goods and services Gross National Product GDP plus net income earned abroad Personal Income income including transfer payments received by households Personal Disposable Income personal income that households retain after paying income taxes Measuring National Income through Value Added Value Added the sum of all the income wages interest profits and rent generated by an organization For a firm we can measure value added by the dollarvalue of the rm s sales minus the dollar value of the goods and services purchased from other firms How to use the GDP In ator GDP De ator an index that measures how the prices of goods and services included in GDP change over time GDP De ator Nominal GDPReal GDP x 100 ChainWeighted Index a method for calculating changes in prices that uses an average of base years from neighboring years By Peak recessions After the Trough the expansion phase Recession commonly defined as six consecutive months of declining real GDP Depression the common name for a severe recession Transition Economy country transitioning from a centrally planned economy to a market economy