Chapter 2

# Chapter 2 - A PowerPoint Tutorial to Accompany...

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1 Chapter Two A PowerPoint Tutorial to Accompany macroeconomics, 5th ed. N. Gregory Mankiw Mannig J. Simidian ® CHAPTER TWO The Data of Macroeconomics

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2 Chapter Two Gross Domestic Product (GDP) is the market value of all final goods and services produced within an economy in a given period of time. The consumer price index (CPI) measures the level of prices. The unemployment rate tells us the fraction of workers who are unemployed.
3 Chapter Two There are 2 ways of viewing GDP Total income of everyone in the economy Total expenditure on the economy’s output of goods and services Households Firms Income \$ Labor Goods Expenditure \$ For the economy as a whole, income must equal expenditure . GDP measures the flow of dollars in this economy. Income, Expenditure And the Circular Flow

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4 Chapter Two 1) To compute the total value of different goods and services, the national income accounts use market prices. Thus, if \$0.50 \$1.00 GDP = (Price of apples × Quantity of apples ) + (Price of oranges × Quantity of oranges ) = ( \$0.50 × 4 ) + ( \$1.00 × 3 ) GDP = \$5.00 2) Used goods are not included in the calculation of GDP. 3) The treatment of inventories depends on if the goods are stored or if they spoil. If the goods are stored, their value is included in GDP. If they spoil, GDP remains unchanged. When the goods are finally sold out of inventory, they are considered used goods (and are not counted).
5 Chapter Two 4) Intermediate goods are not counted in GDP– only the value of final goods. Reason: the value of intermediate goods is already included in the market price. Value added of a firm equals the value of the firm’s output less the value of the intermediate goods the firm purchases. 5) Some goods are not sold in the marketplace and therefore don’t have market prices. We must use their imputed value as an estimate of their value. For example, home ownership and government services.

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6 Chapter Two The value of final goods and services measured at current prices is called nominal GDP . It can change over time either because there is a change
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Chapter 2 - A PowerPoint Tutorial to Accompany...

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