Goals and Outline of Topic 11.Gross Domestic Product (GDP) –What is Gross Domestic Product and how we measure it? Why is this measure important?–What are the definitions of the major expenditure components? –What are the trends in these components over time?2Inflation2.Inflation –What is the difference between ‘Real’ and ‘Nominal’ variables?–How is inflation measured?3.Interest Rate–How is inflation measured? –Why do we care about Inflation?4.Unemployment–How is Unemployment measured? –Why do we care about Unemployment?2
PART I: GDP
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Gross Domestic Product (GDP)•GDP is a measure of output! •Why Do We Care? –Because output is highly correlated (at certain times) with things we care about (standard of living, wages, unemployment, inflation, budget and trade deficits, value of currency, etc…) •Formal Definition: –GDP is the Market Valueof all Final Goodsand ServicesNewly Producedon Domestic SoilDuring a Given Time Period (different than GNP)4