9-1-09 - ECONOMICS 100B Professor Martha Olney Lecture 2...

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Professor Martha Olney 9/1/09 Lecture 2 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS There are two handouts being passed out. The first is a problem set and the second is called “Today’s Economy.” Thursday is the last day PowerPoint will be used in lecture. Other announcements were sent via email. LECTURE Lecture Outline Economic Problems and Issues o Real GDP Growth o Unemployment o Inflation and Deflation Today’s Economy Definition of GDP In this class, we will learn about long-run economic growth and short-run fluctuations of Gross Domestic Product (GDP). Therefore, we must define GDP. GDP is the annual value of final goods and services produced in an economy. Annual : GDP is measured on an annual basis. However, it is reported every quarter. Quarterly results of GDP are reported as if production were to continue over the next nine months at a pace consistent with the last three months. In other words, data from the three months in a quarter are used to estimate GDP for a twelve-month period. Value : GDP is a measure of the value of goods produced, not the number or amount of goods produced. Value is determined by the selling price. Value can be expressed in two ways, in nominal terms or in real terms. Nominal GDP is based on prices from a specific time period. For example, nominal GDP of 1976 is calculated using 1976 prices. Value can also be measured in real terms. Real GDP (RGDP) is calculated using prices from a base year. These prices are constant. GDP is calculated by finding the product of prices and quantity of goods produced. Nominal GDP can change due to both changes in price levels as well as changes in quantity produced. RGDP, on the other hand, can only change due to changes in quantity since prices are constant. Student: What if there are new products and services introduced? In that case, a process called chain-weighting is used to calculate GDP. This process is complex and will not be covered in this class. Final Goods and Services: GDP measures final as opposed to intermediate goods and services. Intermediate goods and services are inputs used to create a final output. For GDP, we only count final goods and services purchased by the end user. For example, if a deli buys a loaf of bread to make a sandwich, then the loaf of bread is an intermediate good and the sandwich is the final good. This loaf of bread is not included in GDP, but the sandwich is included. However, if I buy a loaf of bread, then it is a final good because I do not intend to use it as an input for another output. Produced:
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This note was uploaded on 02/04/2011 for the course ECON 100B taught by Professor Wood during the Fall '08 term at Berkeley.

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9-1-09 - ECONOMICS 100B Professor Martha Olney Lecture 2...

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