l2 - Econ 102 Fall 2006 Lecture 2 Production functions and...

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1 Econ 102 Fall 2006 Lecture 2 Production functions and TFP
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2 What is gdp? Gdp is the total quantity of goods and services produced in (the U.S.) in a given year. If measured in current dollars it is called nominal Gdp If measured in constant dollars it is called real Gdp
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3 Constant dollars Textbook chapter 2 Gdp in constant dollars is a measure of the real value of goods and service produced in a given year Gdp in dollars is the money value of the goods and services produced in a given year
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4 Circular flow Firms pay income (gdi) to households for the factors of production. They produce output (gdp) that they sell to households. Households supply the services of the factors of production to firms in return for income (gdi) . They spend their income on output (gdp). gdp gdi Households Firms Gross domestic income Gross domestic product
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5 Stocks and flows GDP is a flow: Physical wealth is a stock Human wealth is a stock Profit plus rent is the return to physical capital The wage is the return to human capital
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