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321LecNote02Ch2

# 321LecNote02Ch2 - Instructor Kim H.H Fall 2009 Intermediate...

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Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 1 Chapter 2. The Science of Macroeconomics Gross Domestic Product: Expenditure and Income Two definitions: Total ____________ on domestically-produced final goods and services. Total ____________ earned by domestically-located factors of production. The Circular Flow Value added : The value of output minus the value of the _______________________ used to produce that output NOW YOU TRY: Identifying value-added A farmer grows a bushel of wheat and sells it to a miller for \$1.00. The miller turns the wheat into flour and sells it to a baker for \$3.00. The baker uses the flour to make a loaf of bread and sells it to an engineer for \$6.00. The engineer eats the bread. Compute value added at each stage of production and GDP Goods Labor

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Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 2 Answer Final goods, value added, and GDP GDP = value of final goods produced = ______________________________________________________________________ The value of the ____________ goods already includes the value of the ____________ goods, so including intermediate and final goods in GDP would be double-counting. The expenditure components of GDP _______________, C _______________, I ________________________, G _______________, NX An important identity: Y = C + I + G + NX
Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 3 Consumption (C) definition: The value of all goods and services bought by households. Includes: durable goods last a long time e.g., ______________________________ nondurable goods last a short time e.g., ______________________________ services work done for consumers e.g., ______________________________ U.S. consumption, 2008 Investment (I) Spending on goods bought for future use ( i.e. , _______________) 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 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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Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 4 U.S. Investment, 2008 Investment vs. Capital Note: ____________________________________________________________ Example (assumes no depreciation) : 1/1/2009: economy has \$500b worth of capital during 2009: investment = \$60b 1/1/2010: _____________________________________________ Stocks vs. Flows A stock is a __________________________________________ . E.g
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321LecNote02Ch2 - Instructor Kim H.H Fall 2009 Intermediate...

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