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Chapter 23 -- Carlos Pitta

Chapter 23 -- Carlos Pitta - Chapter 23 Measuring a Nations...

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CHAPTER 23 MEASURING A NATION’S INCOME 1 Chapter 23 Measuring a Nation’s Income Instructor: Carlos Pitta
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CHAPTER 23 MEASURING A NATION’S INCOME 2 In this chapter, look for the answers to these questions: What is Gross Domestic Product (GDP)? How is GDP related to a nation’s total income and spending? What are the components of GDP? How is GDP corrected for inflation? Does GDP measure society’s well-being?
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CHAPTER 23 MEASURING A NATION’S INCOME 3 Micro vs. Macro Microeconomics : The study of how individual households and firms make decisions, interact with one another in markets. Macroeconomics : The study of the economy as a whole. We begin our study of macroeconomics with the country’s total income and expenditure.
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CHAPTER 23 MEASURING A NATION’S INCOME 4 Income and Expenditure Gross Domestic Product (GDP) measures total income of everyone in the economy. GDP also measures total expenditure on the economy’s output of g&s. For the economy as a whole, income equals expenditure income equals expenditure , because every dollar of expenditure by a buyer is a dollar of income for the seller.
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CHAPTER 23 MEASURING A NATION’S INCOME 5 The Circular-Flow Diagram is a simple depiction of the macroeconomy. illustrates GDP as spending, revenue, factor payments, and income. First, some preliminaries: Factors of production are inputs like labor, land, capital, and natural resources. Factor payments are payments to the factors of production. ( e.g ., wages, rent)
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CHAPTER 23 MEASURING A NATION’S INCOME 6 FIGURE 1:    The Circular-Flow Diagram Households : own the factors of production, sell/rent them to firms for income buy and consume g&s Households Firms
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CHAPTER 23 MEASURING A NATION’S INCOME 7 FIGURE 1:    The Circular-Flow Diagram Households Firms Firms : buy/hire factors of production, use them to produce g&s sell g&s
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CHAPTER 23 MEASURING A NATION’S INCOME 8 FIGURE 1:    The Circular-Flow Diagram Markets for Factors of Production Households Firms Income (=GDP) Wages, rent, profit (=GDP) Factors of production Labor, land, capital Spending (=GDP) G & S bought G & S sold Revenue (=GDP) Markets for Goods & Services
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CHAPTER 23 MEASURING A NATION’S INCOME 9 What This Diagram Omits The government collects taxes purchases g&s The financial system matches savers’ supply of funds with borrowers’ demand for loans The foreign sector trades g&s, financial assets, and currencies with the country’s residents
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CHAPTER 23 MEASURING A NATION’S INCOME 10 …the market value of all final goods & services produced within a country in a given period of time. Gross Domestic Product (GDP) Is… Goods are valued at their market prices, so: GDP measures all goods using the same units (e.g., dollars in the U.S.), rather than “adding apples to oranges.” Things that don’t have a market value are excluded, e.g., housework you do for yourself.
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CHAPTER 23 MEASURING A NATION’S INCOME 11
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