mt2rev - 2013 Fall 03 Second Midterm 5 GDP Expenditure C I...

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2013 Fall 03 Second Midterm 5. GDP; Expenditure: C + I + G + (X – M) --- purchases by households, government, business of physical capital and additions to inventories, exports minus imports. Omit intermediates [purchases by business used up in the production of output], purchases of used goods or financial assets. Omits household production. Income: all income payments to factors – labor earnings, profits, rent, net interest, proprietors’ income. Total is national income at factor cost; to get to GDP, add depreciation and indirect taxes, subtract subsidies. Value added: Value of a firm’s output minus its purchases of intermediates. Sum of value added for all firms equals GDP at factor cost. Real GDP is measured at dollars of constant purchasing power of base period. Nominal GDP is measured in prices of the year in question. The price index for GDP, the GDP deflator, is (nominal GDP)/(real GDP) times 100. Real GDP is calculated by ‘chain linking’ – averaging growth when measured at year x prices and year (x + 1) prices for each pair of adjacent years, back to the base period. 6. You are employed if you work 1 hour a week for pay or 15 hours a work unpaid, or are temporarily absent from a job. You are unemployed if you are not employed but are looking for work or waiting to be recalled. If neither of the above apply, you are not in the labor force. Labor force = employed + unemployed. Labor force participation rate = labor force divided by working age population [16 and over in US]. Unemployment rate = unemployed divided by labor force. In US, labor force participation has risen because female labor force participation has risen over last 40 years. Average hours have declined, total hours have increased because labor force increased. Types of unemployment: a. Frictional – job search, it takes time to find a job, usual working of the labor market b. Structural – mismatch between characteristics of workers and job openings, because of changes in structure of economy and labor force.
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