Section 4 - Tracking the Macroeconomy Savings Investment...

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Tracking the Macroeconomy; Savings, Investment Spending, and the Financial System; Income and Expenditure
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We have three important macroeconomic variables on which we will focus We need to think about how we can calculate these values for the entire economy This is a process called national income accounting (1) Output (3) Employment (2) Prices
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Gross Domestic Product Total dollar value of all final goods and services produced in the economy in a given year $14,280.7 billion in 2008 Final goods, not intermediate goods Example: Wheat costs $.75 Bread costs $1.50 Only add $1.50 to avoid double-counting Value added is $.75
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Includes foreign-owned output produced domestically Excludes domestic-owned output produced abroad This will be our overall measure of how the economy is performing Idea is that this gives a sense of the size of the pie we are splitting (i.e. the bigger the pie the better off we all are)
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Limitations : Excludes many things (1) Used goods (are not final goods) (2) Paper transactions (stocks, bonds) (3) Non-market goods (housework, etc) (4) Black-market goods Does not include some positive things (1) Reduction in crime (2) Reduction in poverty (3) Literacy rates (4) etc.
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Conclusion : Probably not accurate measure of total output produced by an economy at one point in time, but We want to compare changes over time, so as long as mismeasurement is constant growth measures should be accurate
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Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product ... if we should judge America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. Senator Robert F. Kennedy It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl.
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It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Our gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worth while. And it can tell us everything about America except why we are proud that we are Americans.
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National Income Accounting Name we give to process of determining total output of a given economy Deals with how money flows back and forth through economy (i.e. income and expenditures) Key Point : Income and Expenditures must end up being equal
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Intuition : Income and expenditures must balance
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