Chapter 2 student

Chapter 2 student - Macroeconomic Data Mankiws Maxim: No...

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1 Macroeconomic Data Mankiw’s Maxim: No issue in economics has ever been decided on the basis of facts.
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2 Objectives and topics • Objectives – Introduce concepts for measuring macroeconomic activity – Introduce basic economic concepts • Topics – GDP – Prices – Unemployment
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Gross Domestic Product: Expenditure and Income Two definitions: – Total expenditure on domestically-produced final goods and services. – Total income earned by domestically-located factors of production. Expenditure equals income because every dollar spent by a buyer becomes income to the seller.
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4 The economy’s circular flow Households Firms Goods Labor Income Expend.
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5 Measuring GDP issues • Inventories – treated as part of expenditure and income – if it spoils then the firm loses income • Differing products – they are measured in dollar terms, not units produced • Intermediate goods – only the final sale is counted – alternatively we could count the value added in each step
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Measuring GDP issues - 2 • Imputed values – We impute values for owner housing and count this in GDP – We impute many public services at cost: police, fire, military etc. – Some imputations are ignored: value of meals provided at home, housecleaning, jewelry “services”, imputed rent on cars – Underground economy not counted – GDP is an imprecise measure
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The expenditure components of GDP • consumption, C • investment, I • government spending, G • net exports, NX An important identity: Y = C + I + G + NX aggregate expenditure value of total output
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Consumption (C) durable goods last a long time e.g., cars, home appliances nondurable goods last a short time e.g., food, clothing services work done for consumers e.g., dry cleaning, air travel definition: The value of all goods and services bought by households. Includes:
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U.S. consumption, 2008 42.6 20.8 7.2 70.5% 6,069.6 2,965.1 1,023.2 $ 10,057.9 Services Nondurables Durables Consumption % of GDP $ billions
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Investment (I) • Spending on goods bought for future use ( i.e. , capital goods) • Includes: Business fixed investment Spending on plant and equipment Residential fixed investment Spending by consumers and landlords on housing units Inventory investment The change in the value of all firms’ inventories
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U.S. Investment, 2008 –0.3 3.4 10.9 14.0% –47.0 487.7 1,552.8 $1,993.5 Inventory Residential Business fixed Investment % of GDP $ billions
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Note: Investment is spending on new capital.
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Chapter 2 student - Macroeconomic Data Mankiws Maxim: No...

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