Chapter 2

Chapter 2 - Kimberly Zhang Chapter 2 CPI measures level of...

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Kimberly Zhang Chapter 2 CPI measures level of prices GDP tells us the nation’s income and the total expenditure on its output of goods and services o GDP is the market value of all final goods and services produced within an economy in a given period of time Used goods don’t count (ex: reselling baseball cards) Inventory Spoiled bread doesn’t alter GDP If bread is put into inventory to be sold later, owners of firm are assumed to have “purchased” bread for firm’s inventory, and firm’s profit is not reduced by additional wages it paid o Higher wages raise total income, greater spending on inventory raises total expenditure, the economy’s GDP rises o When firm sells the bread later, bread counts as used good o Sale of inventory does not affect GDP Increase in inventory total income still equal to total expenditure on goods and services since increase in inventories were counted both as part of expenditure and as part of income Does not count intermediate goods Way to compute value of all final goods and services is to sum value added at each stage of production Value added = Sales – Cost of intermediate goods Imputed value: estimating value of goods and services not sold in the market (ie, they don’t have market prices) Important for determining value of housing o Department of Commerce estimates what market rent for a house would be if it were rented and includes imputed rent as part of GDP o No imputations made for value of goods and services sold in the underground economy GDP = Price * Quantity
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This note was uploaded on 09/13/2009 for the course 220 204 taught by Professor Clare during the Spring '08 term at Rutgers.

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Chapter 2 - Kimberly Zhang Chapter 2 CPI measures level of...

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