lecture_2

lecture_2 - INTERMEDIATE MACRO THEORY LECTURE 2 Fall 2011...

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INTERMEDIATE MACRO THEORY: LECTURE 2 Fall, 2011, UC Davis Giovanni Peri, Professor of Economics, [email protected]
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Introduction This week we learn: National Accounting: How to measure Gross Domestic Product The composition of GDP, and how it has changed over time. How to use GDP to measure the evolution of living standards over time. How to use GDP to measure differences in living standards across countries.
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National income accounting provides a systematic method of aggregating the production of diverse goods into a single measure of overall economic activity. It is an innovation introduced in 1930’s. National accounting allows us to analyze the state of an economy at a given time, the changes over time, and differences across countries. It is not easy to “compare” a meaningful measure of gross product over time and across countries
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Measuring the State of the Economy Gross domestic product (GDP) is the market value of the final goods and services produced in an economy over a certain period. Need Not be Sold in that period Need to go through the Market Capital Gains are not part of GDP United States GDP was 14.6 trillion dollars in 2010. EU, GDP was 16.2 Trillion dollars in 2010
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Key identity Production = Expenditure = Income The production measure of GDP counts the value of (final!!) goods produced in the economy. The expenditure measure of GDP counts the value of total purchases in the economy. The income measure of GDP counts all the income earned in the economy. All three approaches give identical measures of GDP.
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A Farm Example A farmer owns an Apple farm, hire workers grows apples and sells them at a stand on the road. GDP of the farm economy can be measured in one of three ways 1) Counting the value of apples produced in a year. 2) Counting the value of apples sold at the stand in a year (plus the value of left-over apples at the stand) 3) Adding the payments to workers (wages) and to farmer (net operating surplus, or “profit” in non-economic lingo).
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Net operating surplus, sometimes called profits by non-economists, is the return to the owner of capital (fruit stand, farm, land) prevailing in perfect competition Economic profits are the above-normal returns associated with prices that exceed those that prevail under perfect competition. They stem from some form of monopoly power that can be exploited to increase price over marginal costs. Definition
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This note was uploaded on 10/17/2011 for the course ECN 101 taught by Professor Frenkel during the Fall '10 term at UC Davis.

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lecture_2 - INTERMEDIATE MACRO THEORY LECTURE 2 Fall 2011...

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