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lecture 4 - Measuring a Nations Income and Calculating Real...

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Economics 103 Economics 103 Measuring a Nations  Measuring a Nations  Income and  Income and  Calculating Real and  Calculating Real and  Nominal GDP Nominal GDP
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Macroeconomics Macroeconomics Macroeconomics  is the study of the economy as a  whole.  Its goal is to explain the economic changes  that affect many households, firms, and markets at  once. Microeconomics  is the study of how individual  households and firms make decisions and how they  interact with one another in markets.
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Understanding the Economy Understanding the Economy Identify the important areas: Total output (and income) The average of prices Resource employment Measure the important areas using: Real Gross Domestic Product Consumer Price Index Monthly unemployment rate
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The Circular-Flow Diagram The Circular-Flow Diagram Households Businesses Market for Factors of Production Product Market $ $ $ $
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Two Methods of Computing An  Two Methods of Computing An  Economy’s Income Economy’s Income Expenditure Approach : Sum the total expenditures by households  (from the top portion of the circular flow). Resource Cost or Income Approach: Sum the total wages and profit paid by firms  for resources (from the bottom portion of the  circular flow).
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The Economy’s  The Economy’s  Income and Expenditure Income and Expenditure When judging whether the economy is doing  well or poorly, it is natural to look at the total  income that everyone in the economy is earning. For an economy as a whole, income must equal  expenditure.  The forces of supply and demand determine the  market equilibrium price and quantity that is  produced and exchanged.
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A measure of the income and  expenditures of an economy is  Gross  Domestic Product (GDP). Gross Domestic Product  measures: an economy’s total expenditure on newly  produced goods and services and the total  income earned from the production of these  goods and services The Economy’s  The Economy’s  Income and Expenditure Income and Expenditure
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Gross Domestic Product Gross Domestic Product   The total market  value of all final  goods and  services produced  during a given  period of time  within a country,  region, or state .
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