# ch%202 - MACROECONOMICS CHAPTE R 2 The S cie nce of Macroe...

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1 CHAPTER 2 The Data of Macroeconomics MACROECONOMICS C H A P T E R The Science of Macroeconomics 2
2 CHAPTER 2 The Data of Macroeconomics Gross Domestic Product:   Expenditure and Income Two definitions: § Total expenditure on domestically-produced final goods and services. § Total income earned by domestically-located factors of production. Expenditure equals income because every dollar spent by a buyer becomes income to the seller.
3 CHAPTER 2 The Data of Macroeconomics The Circular Flow Households Firms Goods Labor Expenditure (\$) Income (\$)
4 CHAPTER 2 The Data of Macroeconomics Value added Value added : The value of output minus the value of the intermediate goods used to produce that output
5 CHAPTER 2 The Data of Macroeconomics NOW YOU TRY:   Identifying value-added § A farmer grows a bushel of wheat and sells it to a miller for \$1.00. § The miller turns the wheat into flour and sells it to a baker for \$3.00. § The baker uses the flour to make a loaf of bread and sells it to an engineer for \$6.00. § The engineer eats the bread. Compute value added at each stage of production and GDP
6 CHAPTER 2 The Data of Macroeconomics Final goods, value added, and GDP § GDP = value of final goods produced = sum of value added at all stages of production. § The value of the final goods already includes the value of the intermediate goods, so including intermediate and final goods in GDP would be double-counting.
7 CHAPTER 2 The Data of Macroeconomics The expenditure components of GDP § consumption, C § investment, I § government spending, G § net exports, NX An important identity: Y    =    C   +   I   +   G   +   NX aggregate expenditure value of total output
8 CHAPTER 2 The Data of Macroeconomics Consumption (C) § durable goods last a long time e.g., cars, home appliances § nondurable goods last a short time e.g., food, clothing § services work done for consumers e.g., dry cleaning, air travel definition: The value of all goods and services bought by households. Includes:
9 CHAPTER 2 The Data of Macroeconomics U.S. consumption, 2008 42.6 20.8 7.2 70.5% 6,069.6 2,965.1 1,023.2 \$ 10,057.9 Services Nondurables Durables Consumption % of GDP \$ billions
10 CHAPTER 2 The Data of Macroeconomics Investment (I) § Spending on goods bought for future use ( i.e. , capital goods) § Includes: § Business fixed investment Spending on plant and equipment § Residential fixed investment Spending by consumers and landlords on housing units § Inventory investment The change in the value of all firms’ inventories
11 CHAPTER 2 The Data of Macroeconomics U.S. Investment, 2008 –0.3 3.4 10.9 14.0% –47.0 487.7 1,552.8 \$1,993.5 Inventory Residential Business fixed Investment % of GDP \$ billions
12 CHAPTER 2 The Data of Macroeconomics Investment vs. Capital Note: Investment is spending on new capital. Example (assumes no depreciation) : § 1/1/2009: economy has \$500b worth of capital § during 2009: investment = \$60b § 1/1/2010: economy will have \$560b worth of capital
13 CHAPTER 2 The Data of Macroeconomics Stocks vs. Flows A flow is a quantity measured per unit of time. E.g ., “U.S. investment was \$2.5 trillion during 2009.” Flow Stock A stock is a quantity measured at a point in time. E.g ., “The U.S. capital stock was \$26 trillion on January 1, 2009.”