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# econ notes - ~Real output in the U.S grows exponentially at...

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11/4/08 ~Real output in the U.S. grows exponentially at an average rate of 3.4% per year Gross Domestic Product (GDP) is a measure of a nation’s output. GDP measures how much an economy produces in a given period, such as a quarter or a yr. Because one cannot add “apples and oranges” GDP is constructed by adding together the market value of apples and oranges. GDP avoids double counting by only counting the value of final goods and services. Nominal GDP is measured in current dollars, Real GDP is measured in constant dollars. Current year Q’s are valued at base year prices. Real GDP in the U,S is currently measured in Year 2000 Dollars Real GDP is computed by using base year prices to value the quantities of final goods production. 11/6/08 Measuring the General level of prices and inflation (GARDENER 107) A price index is an average of process of different goods and services. 2 important price indices = GDP Deflator and Consumer Price Index GDP Deflator is implicit in the values of nominal and real GDP. NGDP = nominal (current dollar) DP RGDP = real (base year dollar) GDP NGDP = P x RGDP so the GDP deflator is P = NGDP/RGDP The GDP deflator is a weighted average of prices in the economy with weights given by the relative importance of each component. Consumer price index measures the cost of a standard basket of goods and services relative to the costr of the same basket of goods and services in a fixed 11/11/08 Economic Growth and Productivity

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What determines growth rate? Let Y = Real GDP N = Number of workers P = population Y / P = Y/N x N/P used to track growth in productivity of those who work *Growth in output per capita is influenced most by growth in labor productivity (output per worker). (more so than by the fraction of the working population). Increases in labor productivity can be accounted for by: i. increases in the quality and quantity of physical capital that workers use ii. increases in human capital that help workers work smarter iii. using more land and other natural resources in the production process iv. advances in technology and inventions Also promoted by: i. increases in the quality of entrepreneurship and management ii. a political and legal environment compatible with growth There are large national differences in capital available to workers. -There are large national differences in education. Investements in entrepreneurship can boost labor prodcutvivity -entrepreneurship is the willingness to undertake new ventures and start new businesses. - it is the search for ‘surplus creating activities’ - whether an economy promotes or frustrates it depends on 1. Tax rates and policies
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## This note was uploaded on 12/08/2008 for the course ECON 101 taught by Professor Balaban during the Spring '07 term at UNC.

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econ notes - ~Real output in the U.S grows exponentially at...

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