chap02 - IN THIS CHAPTER YOU WILL LEARN Chapter 2 The Data...

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2016/2/19 1 Chapter 2 The Data of Macroeconomics IN THIS CHAPTER, YOU WILL LEARN: …the meaning and measurement of the most important macroeconomic statistics: gross domestic product (GDP) the consumer price index (CPI) the unemployment rate 1 CHAPTER 2The Data of Macroeconomics Gross Domestic Product: Expenditure and Income Two definitions: Total expenditure on domestically-produced final goods and services. Total income earned by domestically-located factors of production. Expenditure equals income because every dollar a buyer spends becomes income to the seller. CHAPTER 2The Data of Macroeconomics The Circular Flow Households Firms Goods Labor Expenditure ($) Income ($) CHAPTER 2The Data of Macroeconomics Value added Value added: The value of output minus the value of the intermediate goods used to produce that output NOW YOU TRY Identifying value added A farmer grows a bushel of wheat and sells it to a miller for $1.00. The miller turns the wheat into flour and sells it to a baker for $3.00. The baker uses the flour to make a loaf of bread and sells it to an engineer for $6.00. The engineer eats the bread. Compute value added at each stage of production and GDP 5
2016/2/19 2 CHAPTER 2The Data of Macroeconomics Final goods, value added, and GDP GDP = value of final goods produced = sum of value added at all stages of production. The value of the final goods already includes the value of the intermediate goods, so including intermediate andfinal goods in GDP would be double counting. CHAPTER 2The Data of Macroeconomics The expenditure components of GDP consumption, Cinvestment, Igovernment spending, G net exports, NX An important identity: Y = C + I + G + NX aggregate expenditure value of total output CHAPTER 2The Data of Macroeconomics Consumption (C) durable goodslast a long time e.g., cars, home appliances nondurable goodslast a short time e.g., food, clothing servicesintangible items purchased by consumers e.g., dry cleaning, air travel definition: The value of all goods and services bought by households. Includes: CHAPTER 2The Data of Macroeconomics U.S. consumption, 2011 46.9 16.5 7.7 71.1 7,079 2,484 1,163 10,726 Services Nondurables Durables Consumption % of GDP $ billions CHAPTER 2The Data of Macroeconomics Investment (I) Spending on capital, a physical asset used in future production Includes: Business fixed investmentSpending on plant and equipment Residential fixed investmentSpending by consumers and landlords on housing units Inventory investmentThe change in the value of all firms’ inventoriesCHAPTER 2The Data of Macroeconomics U.S. Investment, 2011 0.3 2.2 10.2 12.7 46 338 1,532 1,916 Inventory Residential Business fixed Investment % of GDP $ billions
2016/2/19 3 CHAPTER 2The Data of Macroeconomics Investment vs. Capital Note: Investment is spending on new capital.

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