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Lec02handout - Measuring a Nations Income Slide #2 June 29...

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Measuring a Nation’s Income Slide #2 June 29 2010 1 Intro Macro
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The Economy’s Income and Expenditure Gross Domestic Product (GDP) Measures the total income of everyone in the economy Measures the total expenditure on the economy’s output of goods and services For an economy as a whole Income must equal expenditure Circular-flow diagram assumptions: All goods and services bought by households Households - -spend all of their income 2 Intro Macro
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The circular-flow diagram 3 Households buy goods and services from firms, and firms use their revenue from sales to pay wages to workers, rent to landowners, and profit to firm owners. GDP equals the total amount spent by households in the market for goods and services. It also equals the total wages, rent, and profit paid by firms in the markets for the factors of production.
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Measurement of Gross Domestic Product Gross domestic product (GDP) Market value of all final goods and services Produced within a country In a given period of time “GDP is the market value…” Market prices - reflect the value of the goods 4 Intro Macro
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Measurement of Gross Domestic Product “… of all…” All items produced in the economy And sold legally in markets Excludes most items Produced and sold illicitly Produced and consumed at home “… final…” Value of intermediate goods is already included in the prices of the final goods 5 Intro Macro
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Measurement of Gross Domestic Product “… goods and services…” “… produced…” Goods and services currently produced “… within a country…” Goods and services produced domestically, regardless of the nationality of the producer “… in a given period of time” A year or a quarter 6 Intro Macro
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Y = C + I + G + NX Identity Y
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Lec02handout - Measuring a Nations Income Slide #2 June 29...

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