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Economics 100B - 4 (1-25-07)

Economics 100B - 4 (1-25-07) - Economics 100B Professor...

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Economics 100B Professor Steven Wood 1/25/07 Lecture 4 ASUC Lecture Notes Online (formerly Black Lightning) is the only authorized note-taking service at UC Berkeley. Please do not share, copy or illegally distribute these notes. Our non-profit, student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. Sharing or copying these notes is illegal and could end note taking for this course LECTURE Finishing Real GDP From Last Time Measuring the Real GDP The Income Side GDP includes some payments that are not payments to the factors of production. Capital Consumption Allowances – Depreciation on the capital stock. We are not paying any income to the wearing out of capital. After we correct for Capital Consumption we get: National Income = Labor Income + Capital Income Labor Income This constitutes two-thirds of national income. Capital Income Includes Profits, Rent, Interest, Royalties Accounts for 30% of national income. Chart of labor and capital income – Notice how the ratios of labor and capital income are pretty much constant. We don’t have to think about how the ratio changes in our models because it is fairly constant. Personal Income How much income the households receive. A substantial portion of this is wage income. Proprietor’s income is income from small businesses. A lot of these transactions are purely financial, but they still end up being spent and that’s what this counting method is trying to capture. Economic Well-Being GDP is not economic well-being. GDP does not capture everything: We have value associated with non-work and leisure time. There is also value to non- market activities such as volunteer work. We know that there is an underground economy as well. GDP does not capture environmental quality. We don’t adjust for damage to the environment. We don’t make any adjustments for resource depletion. All of these things affect our well-being. We have quality of life issues too like crime, traffic, civic organizations, these all can influence our well-being that are not counted in GDP. Poverty and income inequality is not captured in GDP either. There might be effects of these things on GDP, but not explicitly.
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ASUC Lecture Notes Online Economics 100B 1/25/07 However, there is a strong positive correlation between real GDP and standard of living. Real GDP is a measure of material standards of living. Lost output (real GDP) reduces: 1) Disposable Income – The amount of money people have after taxes 2) Corporate Profits – Hurts businesses and stock prices, thus the owners. 3)
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Economics 100B - 4 (1-25-07) - Economics 100B Professor...

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