Lecture2 - ECONOMICS 100B Professor Steven Wood 1/21/10...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECONOMICS 100B Professor Steven Wood 1/21/10 Lecture 2 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our 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. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS Professor Wilcox has lots of room in both his sections, so if you are on the waitlist you can take Macroeconomics with Professor Wilcox. LECTURE We will talk about the definitions of national income accounting, gross domestic product, savings and wealth, real GDP, price indexes, inflation and interest rates. How do we measure these macroeconomic variables? National income accounting This is essentially an accounting mechanism developed in the late 1920s in order to get a handle on how much an economy is actually producing. The national income and product accounts are accounting frameworks used to measure current economic activity. They measure economic output in three different ways to give us the best possible measure of economic output. The three different approaches give identical results. The product approach is the dollar amount of output produced and measures production directly. The income approach is the dollar incomes generated by production. This approach measures how much income is earned through the production process. The expenditure approach is the total dollar amount spent by purchasers. Because we know that everything that is produced has to be bought, each approach essentially entails a different way of measuring the same thing. The three approaches are equivalent because any output produced (product approach) is purchased by someone (expenditure approach) and result in income to someone (income approach). Again, what is important to recognize is that all three measures must essentially be equal. Whenever you produce something, you must hire factors of production that need to be paid and therefore income is generated, and those factors of production usually spend their income. As long as you are measuring the right factors, looking at either how much is produced, how much is earned, and how much is spent should give us the same answer. In an economy as big as the US, as diverse as we are, these numbers don’t exactly match up due to errors and omissions. This is because we can’t measure things as exactly as we would like. The fundamental identity of national income accounting is: Total Production= Total Income= Total Expenditure. This statement will always be true if we are talking about the national economy. Gross Domestic Product.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/16/2010 for the course ECON 100B taught by Professor Wood during the Spring '08 term at University of California, Berkeley.

Page1 / 7

Lecture2 - ECONOMICS 100B Professor Steven Wood 1/21/10...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online