Economics 012 2-5-2008

Economics 012 2-5-2008 - o GDP deflator Similar to consumer...

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Economic 012—2/5/2008 - Circular Flow Diagram o Goods and services move clockwise from business to household and back o Money to pay goes counterclockwise from households to businesses and back o Capital goods: goods that businesses purchase - K Mrkt=capital market= Household Savings Income= output - Gross Domestic Product (GDP) is the best estimate of the price of goods and services in a calendar year - 3 things that are not under control (vast majority of $$) o Social security o Medicare/Medicaid o National Defense - Comparison of nominal GDP in ’07 and ‘00 o Σ P07 x Q07 o Σ P00 x Q00 - Deflate ’07 number for inflation over the 7 years
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Unformatted text preview: o GDP deflator Similar to consumer price index Includes capital goods unlike CPI CPI is heavily dominated by services • Labor and productivity changes are very slow, as opposed to manufacturing, which causes inflation-Real GDP= o Σ P07 x Q07 / (P07/P00)= Σ P07 x Q 07 x P00/P07= Σ Q07 x P00-Intermediate Goods and the Avoidance of Double Counting o We include goods only at the final sale of the good o If it is in the non-market sector then it is not included in GDP o Do-it-yourself is not included in GDP o One exception: renting homes...
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This note was uploaded on 10/23/2010 for the course ECON 012 taught by Professor Joutz during the Spring '08 term at GWU.

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Economics 012 2-5-2008 - o GDP deflator Similar to consumer...

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