Lec2 - Finance 101 Monetary Economics the Global Economy...

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Finance 101: Monetary Economics & the Global Economy Lecture 2 NIPA accounts & economic indicators Prof. Hnatkovska Fall 2011
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2 Outline National income accounting What is GDP? What are the characteristics of its components? Why do we care about GDP? How to measure standards of living? Savings and wealth Real GDP, price indices and inflation Nominal and Real Interest Rates. The Yield Curve How is Unemployment measured? Why do we care about Unemployment? Key economic indicators FNCE 101 - Hnatkovska - Lecture 2
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Office hours Professor Thursdays: 5pm – 6:30pm By appointment (email: [email protected]) Office: SH/DH 2311 TAs Stan Rabinovich: [email protected] : Wed 1:30-3:00PM Christina Zhang: [email protected] : Mon 11:00-12:30 Oren Isacoff : [email protected] : Tue 4:30-6:00PM Kuang Li: ku[email protected]: Tue 12:00-1:30PM Zhao Yang: [email protected]: Fri 10:00-11:30AM Office: TA cubicles in finance department FNCE 101 - Hnatkovska - Lecture 2 3
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4 Readings ABC, chapter 2 ABC, chapter 8.1-8.3 ABC, chapter 3.5 FNCE 101 - Hnatkovska - Lecture 2
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Practice questions ABC chapter 2 Review questions 2, 3, 4, 5, 9, 10 Numerical questions (pretty much all of them are great for practice) Analytical questions 2, 3
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How to measure GDP FNCE 101 - Hnatkovska - Lecture 2 6 Income Approach : Value of all final goods and services generates income to someone in the production process Add income received by all producers of output (wages for workers, profits for firm owners) Expenditure Approach : final goods and services being produced are bought by somebody Add the amounts spent by the ultimate consumers of output Product Approach : value of all final goods and services should equal sum of value added at each stage of production Add the market value of all good and services produced MINUS the market value of all intermediate inputs used in the production. All are equivalent: Fundamental identity of National Accounting
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Example: Let's do some adding up Amount Income Expenditure Product workers owners Apple Farm Inc Sales/Turnover sales to public 500 + + sales to Apple Juice Inc 1500 + Operating Expenses wages paid 1000 + 1000 + Apple Juice Inc Sales/Turnover sales to public 3000 + + Operating Expenses wages paid 800 + cost of apples bought 1500 -- 700 + 1800 1700 Total 3500 3500 3500 Profits=Sales-Oper Exp Profits=Sales-Oper Exp FNCE 101 - Hnatkovska - Lecture 2
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Equivalence of the 3 approaches Fundamental identity of national income accounting Total production = total income = total expenditure Any output produced ( product approach) is purchased by someone ( expenditure approach) and results in income to someone ( income approach) FNCE 101 - Hnatkovska - Lecture 2 8 Income ( $ ) Labor Goods ( bread ) Expenditure ( $ ) Households Firms
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GDP: Expenditure approach Production = Expenditures = Y = GDP What is produced is absorbed somewhere: by whom?
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