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Gdp figures are useful for obtaining an estimate of

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Unformatted text preview: pproach: Adding the values added to a product at all stages of production. Per Capita GDP per capita means per person or per head • Per Capita GDP: GDP divided by the population. • GDP figures are useful for obtaining an estimate of the productive capabilities of an economy but they do not necessarily measure happiness or well being. The Expenditures Approach to Computing GDP • Consumption: the sum of spending on durable goods, non-durable goods, and services. • Investment: the sum of purchases of newly produced capital goods, changes in business inventories, and purchases of new residential housing. • Government Purchases: federal, state, and local government purchases of goods and services and gross investment in highways, bridges, and so on. economic agents • Net Exports: exports minus imports. individuals firms government foreign sector National Income (GDP) identity Y = C + II + G + NX Y = C + + G + NX Total demand Total demand for domestic for domestic output (GDP) output (GDP) is composed is composed of of Investment Investment spending by spending by businesses and businesses and households households Government Government purchases of goods purchases of goods and services and services Consumption Consumption spending by spending by households households Net exports Net exports or net foreign or net foreign demand demand net exports is the exports - imports Real vs. Nominal GDP real GDP= (nominal GDP/cpi or price level REAL GDP: production valued at constant prices. if the real GDP changes then that is a change in output because it is price held constant NOMINAL GDP: production valued at current prices. price*quantity price level*Quantity Price level for a certain year*Quantity sold for that certain year Rise in GDP from one year to the next 1. GDP = P x y Real Production increases, prices remain constant. 2. GDP = P x y Nominal Prices increases, production remains constant. 3. GDP = P x y Nominal Prices increases, production increases. Example to calculate Real GDP Nominal GDP 1997 GDP = P x Nominal GDP 1998 GDP = P x y y $10.00 = $5 x 2 $18.00 = $6 x 3 Real GDP 1998...
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