Macro Econ June 14, 2017GDP CH 10 Economic Output- total sum of goods and services produced in an economy -useful proxy for welfare -production within the country (of legitimate and legal goods)ocountries that tend to produce more tend to have higher standards of living -given by: output = Y-C = consumptionoConsumption by households – things they useoEducation (college education) -I = investmentoBuy or build something productive -G = government spendingoDoesn’t include transfer payments – EX Obama care transfer of payment oSocial security is a transfer also – transfer $ from young to oldoGovernment spending is if they build a highway, spend on Amtrak – actually buy somethingoNot transfer from one account to another -NX = net exports (exports – imports) oNeed to subtract imports because they’re not produced here, and need to subtract exports because they’re not being consumed -GDP Equation: Y = C + I + G +NX-How measure it overall, when actually calculate GDP -Output measures 2 things o1. Income o2. Expenditure -economy income will be equal to economy expenditure Measuring GDP -GDP – gross domestic product: “market value of all final goods and services produced with a country during a given time period” -problems:odoesn’t measure illicit activity odoesn’t include home production ocorrection for inventory oneed a numerairenumeraire: unit of account -Methods for calculating GDP: o1. Expenditure method:add up all of the expenditure on final goods and services Y= C + I + G + NX Add them up -*1 exception for households – production usually not counted except in this case
Macro Econ June 14, 2017oimputed rent: if own your own house, need to consider what would pay if were renting it – estimate what rent would be & add to consumption for homeowners add estimated rent to consumption for consumption of housing servicesrent goes to consumption, not buying house buying housing service but if own house have imputed rent oif a buy a new house its investment, if buy a used house its nothing – it’s a used goodo2. Value added method:add up the value from each stage of productionchange in GDP (Step 1) 1,000 + (Step 2) (10,000 - $1,000) total minus input (or cost) + (step 3) (25,000 – 10,000) (total minus input or cost) = 1k + 9k + 15 k = 25,000$o3. Factorpayments methodadd up everything paid to factors of production, basically take payments to labor (workers) to payments to capital (people who own firms, shareholders …)Change in GDP = (payments to labor) + (payments to capital)(70k + 300k) + (80k + 50k) = 500,000 – total contribution to GDP -Nominal vs real-GDP deflatortat time T = 100 oCurrent period quantities with base year prices-Deflator = nominal GDP for year 2 = 100x 40k(10)+ 10k (2k)(20k)10 + 1k(10)= 100 (420k)210k= 100(2)= 200-how does deflator translate to real GDP?