mankiw_7e_chap02

mankiw_7e_chap02 - In Chapter 2 you will learn In Chapter 2...

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Unformatted text preview: In Chapter 2, you will learn In Chapter 2, you will learn : …the meaning and measurement of the most important macroeconomic statistics: Gross Domestic Product (GDP) The Consumer Price Index (CPI) The unemployment rate 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. Expenditure equals income because every dollar spent by a buyer becomes income to the seller. The Circular Flow Households Firms Goods Labor Expenditure ($) Income ($) Value added Value added : The value of output minus the value of the intermediate goods used to produce that output NOW YOU TRY: 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 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. 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 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: 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 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 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 Investment vs. Capital Note: Investment is spending on new capital. Example (assuming 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 Stocks vs. Flows A flow is a quantity measured per unit of time....
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This note was uploaded on 12/04/2011 for the course ECON 305 taught by Professor Terrell during the Spring '08 term at Maryland.

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mankiw_7e_chap02 - In Chapter 2 you will learn In Chapter 2...

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