Macroeconomics- Chapter 10: Measuring a Nation's Income
Macroeconomics- Chapter 10: Measuring a Nation's Income Econ 10233
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This 4 page Class Notes was uploaded by Rooshna Ali on Wednesday March 30, 2016. The Class Notes belongs to Econ 10233 at Texas Christian University taught by Steven Ellis in Winter 2016. Since its upload, it has received 19 views. For similar materials see Intro Macroeconomics in Economcs at Texas Christian University.
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Date Created: 03/30/16
Chapter 10- Measuring a Nation’s Income Microeconomics- the study of how individual households and firms make decisions and interact with one another in markets Macroeconomics- the study of the economy as a whole Gross Domestic Product (GDP) measures total income of everyone in the economy measures total expenditure (spending) on the economy’s output of goods and services For the economy as a whole, income equals expenditure, because every dollar a buyer spends is a dollar of income for the seller. *GDP MEASURES PRODUCTION, NOT SALES* GDP is the market value of all final goods & services produced within a country in a given period of time Goods are valued at their market prices, so: o All goods are measured in the same units (e.g. dollars in the U.S.) o Things that don’t have a market value are excluded (e.g. housework you do for yourself) Final goods o GDP includes only final goods—these already include price of intermediate goods *Final goods: intended for the end user *Intermediate goods: used as components/ingredients in the production of other goods Goods and services o GDP includes tangible goods (DVDs, mountain bikes, beer, etc.) and tangible services (dry cleaning, concerts, cell phone service) Produced o GDP includes only currently produced goods, not goods produced in the past Within a country o GDP measures the value of production that occurs within a country’s borders whether done by its own citizens or by foreigners located there Given period of time o Usually a year or a quarter (3 months) Gross National Product (GNP) Measures production by citizens only! —Not by border. e.g. U.S. citizen doing something in Paris counts e.g. Illegal Mexican doing something in the U.S. doesn’t count.--- but counts for GDP The components of GDP (Y) Consumption (C) o Total spending by households on goods and services Note: For renters, consumption includes rent payments For homeowners, consumption includes the imputed rental value of the house but not the purchase price or mortgage payments! Investment (I) o Total spending on goods that will be used in the future to produce more goods o Includes spending on: Capital equipment (e.g. machines, tools) Structures (factories, office buildings, HOUSES) Inventories (goods produced but not yet sold) Note: “Investment” does not mean the purchase of stocks and bonds Government Purchase (G) o All spending on goods and services by government at the federal, state and local levels Note: Excludes transfer payments such as social security or unemployment insurance benefits they are not purchases of goods and services Net Exports (NX) NX = exports – imports o Exports represent foreign spending on the economy’s goods and services o Imports are portions of C, I, and G that are spent on goods and services produced abroad Y = C + I + G + NX 70% of GDP comes from consumption! IT PLAYS THE BIGGEST ROLE Real vs. Nominal GDP Inflation can distort economic variables like GDP, so we have two version of GDP: Nominal GDP Values output using current prices NOT corrected for inflation Real GDP Values output using the prices of a base year IS corrected for inflation GDP=P∗Q **First year calculations satisfies the definition of both nominal and real GDP Not a coincidence o Real GDP per capita is the main indicator of the average person’s standard of living o GDP does not value: The quality of the environment Leisure time Composition: what exactly is being produced Distribution: GDP per capita is only an average, we don’t know if G/S or income are evenly distributed Product Quality The GDP Deflator The GDP deflator is a measure of the overall level of prices 100∗nominalGDP ¿ realGDP *no units dimensional number *GDP deflator in the base year is always a 100, not by a chance! Inflation rate is the percent increase in the GDP deflator from one year to the next
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