Chapter 7 - chapter: 7 Trackingthe > Macroeconomy 1 of...

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1 of 37 chapter: 7 >> Tracking the  Macroeconomy
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2 of 37 WHAT YOU WILL LEARN IN THIS CHAPTER How economists use aggregate measures to track the performance of the economy. What gross domestic product , or GDP , is and the three ways of calculating it. The difference between real GDP and nominal GDP and why real GDP is the appropriate measure of real economic activity. What a price index is and how it is used to calculate the inflation rate .
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3 of 31 An Expanded Circular-Flow Diagram Government Firms Markets for goods and services Financial Markets Households Factor Markets Rest of the world Government purchases of goods and services Government borrowing Private savings Government transfers Wages, profit, interest, rent Wages, profit, interest, rent Borrowing and stock issues by firms Foreign borrowing and sales of stock Foreign lending and purchases of stock Exports Imports GDP Taxe s Consumer spending
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4 of 37 The National Accounts Almost all countries calculate a set of numbers known as the national income and product accounts . The national income and product accounts, or national accounts, keep track of the flows of money between different parts of the economy.
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5 of 37 The National Accounts Households earn income via the factor markets from wages , interest on bonds , dividends on stocks , and rent on land. A stock is a share in the ownership of a company held by a shareholder. A bond is borrowing in the form of an IOU that pays interest. In addition, households receive government transfers from the government. Disposable income , total household income minus taxes, is available to spend on consumption or to save.
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6 of 37 The National Accounts Private savings , equal to disposable income minus consumer spending, is disposable income that is not spent on consumption. The banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing, are known as the financial markets .
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7 of 37 The National Accounts Government purchases of goods and services (G) is paid for by tax receipts as well as by government borrowing . Exports (X) generate an inflow of funds into the country from the rest of the world, while imports (IM) lead to an outflow of funds to the rest of the world.
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8 of 37 The National Accounts Inventories are stocks of goods and raw materials held to facilitate business operations. Investment spending is spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories. Final goods and services are goods and services sold to the final, or end, user. Intermediate goods and services are goods and services—bought from one firm by another firm— that are inputs for production of final goods and services.
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9 of 37 Gross Domestic Product Gross domestic product or GDP measures the total value of all final goods and services produced in the economy during a given year. It does not include the value of intermediate goods.
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This note was uploaded on 10/04/2011 for the course ECON 2006 at Virginia Tech.

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Chapter 7 - chapter: 7 Trackingthe > Macroeconomy 1 of...

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