Defining Macro Variables -- GDP

Defining Macro Variables -- GDP - Econ 1021 Fall 2009...

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Defining Macro Variables: Gross Domestic Product Econ 1021 Fall 2009 Outline: 1. Some data… 2. Defining GDP 3. How is GDP calculated? 4. Is GDP a measure of well-being? 5. How are changes in prices taken into account? Reading:    Chapters 5 (sections 1 - 4, 5.1); Chapter 6 from  Macroeconomics in Context
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Illustration of the way (real) GDP varies over the business cycle Source: Macroeconomics , 12 th ed., 1999 Richard G. Lipsey, Paul N. Courant & Christopher T.S. Ragan
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The growth rate of U.S. real GDP since 1870 3
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The growth rate of real gross domestic product (GDP) in the United States since 1959 4
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A more current look… h t t p : / / w w w . b e a . g o v / b r i e f r m / g d p . h t m March ’01 – Nov ‘01 Expansion of 73 months prior expansion = 120 months Jan ’08 – “present”
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Gross Domestic Product Gross Domestic Product: the market value of all newly-produced final goods and services produced by factors of production located in the US, during some specified period of time, usually one year. Some important questions: 1. Given the choice to measure market value, there are some issues to deal with: What are we actually measuring & how do we obtain these measures? How do we avoid “double counting”? How do we deal with the problem of inflation? 1. Is GDP a measure of well-being?
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What are we actually measuring & how do we obtain these measures? The focus in the NIPAs is on manufactured fixed assets & inventories Human, social and environmental capital stocks (and investment in the same) are not well-captured by GDP accounting. Market values are hard to determine: Varied retailers & measurement issues Imputations have to be made when there isn’t a market value for production. No imputation is made for home production Not all market transactions are “observed”
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Gross Domestic Product Avoiding “double counting” Circular flow implies that: Value of Value of Value of
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