BA_315_LN_2_US_Economy

# BA_315_LN_2_US_Economy - THE U.S. ECONOMY Lecture Notes #2...

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THE U.S. ECONOMY Lecture Notes #2 BA 315: Economy, Industry, and Competitive Analysis Source: Schiller Chapter 2 Edited by Ali Emami Department of Finance Charles H. Lundquist College of Business University of Oregon

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Introduction This lecture is a general introduction to the U.S. economy. The lecture attempts to provide answers to the following three basic questions: 1. WHAT goods and services does the U.S. produce? 2. HOW is that output produced? 3. FOR WHOM is the output produced? The objective of the lecture is to define and present the following concepts. Concepts you will learn Gross Domestic Product Capital intensive Real GDP Productivity Per Capita GDP Human Capital Economic Growth Monopoly Investment Externality Income Transfers Personal Distribution of Income Exports In-kind income Imports Progressive tax Factors of Production Regressive tax ANNOTATED OUTLINE (source: Schiller Chapter 2) I. WHAT America Produces A. The output of the U.S. economy is large and diverse. To get a sense of how much is produced and what its basic contents are we must investigate further. B. How Much Output 1. By multiplying the physical units of output of each good ( ) Q by its price ( ) P , we can determine the total value ( ) PQ × of each good produced. 2. Gross Domestic Product (GDP) (Table 2.1) f Definition: Gross Domestic Product - The total market value of goods and services produced within a nation's borders in a given time period. For n goods : 112 2 nn GDP P Q P Q P Q + × ++ × L a. GDP is the most common output measure used. b. GDP is based on both physical output and prices. 3. Real GDP (Table 2.2) f Definition: Real GDP - The inflation-adjusted value of GDP; the value of output measured in constant prices.
a. Example of how to calculate nominal and real GDP in 2003. nominal 2003 1,2003 1,2003 2,2003 2,2003 ,2003 ,2003 nn GDP P Q P Q P Q + × + + × L nominal 2003 2003 Price index of a base year real GDP GDP = b. GDP has shortcomings in that either increase in prices or an increase in physical output can cause GDP to increase. c. Inflation adjustments delete the effects of rising prices by valuing output in constant dollars. d. In 2001, the U.S. economy produced over \$10 trillion in output. 4. International comparisons (Figure 2.1) a. Total world output in 2001 was less than \$45 trillion. b. The U.S. economy produces over 20 percent of the entire planet’s output even though the U.S. has less than 5 percent of the world’s population. i. The U.S. has the largest economy (Figure 2.1) ii. U.S. output is two and one-half times larger than Japan’s, the world’s third largest economy. iii. U.S. output is twenty-five times larger than Mexico’s. c. U.S. output exceeds the combined production of all countries in Africa and South America. 5. Per Capita GDP (Table 2.3) f Definition: Per Capita GDP - Total GDP divided by total population; average GDP.

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## This note was uploaded on 04/22/2008 for the course ECON 315 taught by Professor Aliemami during the Spring '08 term at University of Oregon.

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BA_315_LN_2_US_Economy - THE U.S. ECONOMY Lecture Notes #2...

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