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Intro to Econ Chapters 15 and 16

by: Hunter Notetaker

Intro to Econ Chapters 15 and 16 Economics 1200

Marketplace > Rensselaer Polytechnic Institute > Economcs > Economics 1200 > Intro to Econ Chapters 15 and 16
Hunter Notetaker
GPA 3.08

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This is the first week of Macroeconomics notes
Intro to Economics
Sarah Parrales
Class Notes
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This 3 page Class Notes was uploaded by Hunter Notetaker on Sunday March 20, 2016. The Class Notes belongs to Economics 1200 at Rensselaer Polytechnic Institute taught by Sarah Parrales in Spring 2016. Since its upload, it has received 10 views. For similar materials see Intro to Economics in Economcs at Rensselaer Polytechnic Institute.


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Date Created: 03/20/16
Chapter 15 and 16  Measuring a Nation’s Income (Ch.15) o GDP  Measure national income and total expenditure on goods and services  (price x quantity)  Equal to market value of final goods and services  Total income=total spending on goods and services  Sold to end user  Don’t include all input goods o Makes sure not to count good twice  Only measured for goods produced within a country (geographically)  Expenditure separated into 4 components  Consumption o Spending taken by households o Only of new products  Not of something used o Imports positive here,  Investment o “Business Fixed Investment”  Firms’ purchases of physical capital and technology o Inventory Investment  If firm doesn’t sell all of the product, it goes under inventory investment  Once it is sold, it is subtracted from investment and put into one of the other three categories o Household purchase of a new house  Government spending o Spending taken by the government o Doesn’t include transaction spending(social security)  Net exports o Equals exports-imports  During a given period of time (usually a year or quarter)  Not included in GDP  Household production o Produced and consumed in home, doesn’t enter market  Illegal goods and services  Real GDP  Price is held constant at a base year level  Good measure of productivity  Nominal GDP  Price is based on the current year’s price  GDP deflator=(Nom. GDP/Real GDP)*100  Price index  Not usually used for the cost of living or inflation  Nominal and Real GDP are always equal at base year level for Real GDP  Not a great measure of standard of living  Real GDP goes up if pollution goes up  Income inequality o Gross National Product  Total income earned by all nationals(citizens) regardless of where they live  Chapter 16: Measuring the Cost of Living o Consumer Price Index  Bureau of Labor statistics creates “basket”  Base year always =100  Basket contains common consumer goods and services  Basket changes infrequently  CPI=(cost of basket in current year/cost of basket in base year)*100  Inflation rate=(CPI in year2-CPI in year 1)/(CPI in year 1)*100  Some inaccuracies  Introduction of new goods and services  Changes in quality  Outlet bias  Practical applications:  Value in today’s $=value in prior year*(today’s CPI/prior year’s CPI)  (Nominal income/CPI)*100=Real Wage(purchasing power) o Interest Rates  Nominal interest rate  Percentage change in a dollar amount over time  Monetary values  Real interest rates  Nominal interest corrected for effects of inflation  =nominal interest rate-inflation rate  Shows % change in purchasing power  Lender o Shows the true return from lending  Borrower o Shows true cost of borrowing money  Inflation bad for lenders, and good for borrowers o Inflation goes up  Decrease value of money  Decreases real interest  Purchasing power of money given back to lender goes down o Inflation goes down  Increase in value of money  Increases real interest  Purchasing power of money given back to lender goes up


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