Exam #1 Notes

Exam #1 Notes - Chapter 5 Measuring a Nation’s Income •...

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Unformatted text preview: Chapter 5: Measuring a Nation’s Income • macroeconomic : the study of economy-wide phenomena including inflation, unemployment, economic growth • Gross Domestic Product (GDP): the market value of all final goods and services produced within a country in a given period of time o The economy’s income and expenditure GDP is the most closely watched economic statistic because it is thought to be the best single measure of a society’s economic well-being measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services • for an economy as a whole, income must equal expenditure • because all expenditure in the economy ends up as someone’s income, GDP is the same regardless of how we compute it o The measurement of GDP includes all items produced in the economy and sold legally in markets includes only the value of final goods • does not include intermediate goods • does not include goods that have “switched hand” • ex. used cars includes only goods and services currently produced measures the value of production within the geographic confines of a country measures the value of production that takes place within a specific interval o Gross National Product (GNP): total income earned by a nation’s permanent residents ex. if a person earns money outside the US, it counts in GNP no GDP o The Components of GDP Y = C + I + G + NX • y = income, c=consumption, i=investment, nx = (x-m) = net imports (x=exports, m=imports) consumption: spending by household on goods and services with exception of new housing housing is considered an investment investment: spending on capital equipment, inventories, and structures including new housing government purchases: spending on goods and services by government does not include transfer payments net exports: spending on domestically produced goods by foreigners minus spending on foreign goods by domestic residents • NX=X-M o Real vs. Nominal GDP GDP : the production of goods and services valued at current prices real GDP : the production of goods and services valued at constant prices • they want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services • uses prices from a base year • better gauge of economic well-being than is nominal GDP if GDP increases, at least one of two things must be true • economy is producing more goods and services • goods and services are more expensive recession : a decline in a country’s GDP or negative economic growth for two consecutive quarters GDP shortfalls • doesn’t account for: o leisure o non-market transactions o quality of environment o distribution of income • Counterpoint: Real GDP per capita is correlated with literacy, life expectancy, and other measures of well-being GDP deflator...
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This note was uploaded on 03/18/2009 for the course ECON 2020 taught by Professor Kaplan,jul during the Spring '08 term at Colorado.

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Exam #1 Notes - Chapter 5 Measuring a Nation’s Income •...

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