101-2011-L3

101-2011-L3 - Econ 101 Lecture 3 Measurement of Economic...

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Unformatted text preview: Econ 101 Lecture 3 Measurement of Economic Activities PROBLEM SET 1 n On the Web n Due Next Monday in class Shortcomings of GDP n As a measure of production n black market sector not included n household production not included n government expenditures valued at its cost n quality of products not taken care of n As a measure of welfare n Value of leisure not included n Part of GDP is invested and does not affect current living standards n Does not account for distribution of income GDP as a measure of welfare n Read: The Economist, Grossly Distorted Picture (read: on the web) How is GDP actually measured? n By Production n Add the value of production of all businesses n By Expenditures n Add the spending of all different sectors in the economy n By Income n Add the income of all factors in production All three ways are equivalent! n All three approaches give the same measure of GDP! Product = Expenditure = Income 1. GDP by Expenditures GDP = total spending on all final goods and services Consumers .... Private consumption C Firms .............. Private Investment I Government ... Government Expenditures G Foreigners Exports X (minus) .. Imports M GDP = C + I + G + X - M 1. GDP by Expenditures n Where to find data? n http://bea.gov/ n One can measure both Nominal and Real GDP by Expenditures n For Real GDP, GDP=C+I+G+X-M only holds approximately 1. GDP by Expenditures Consumption n Anything that, once enjoyed today, cannot be enjoyed tomorrow n In our models, households get utility from consumption n In NIPA accounts, Consumption is divided into consumption of n Durables n Nondurables n Services 1.1....
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101-2011-L3 - Econ 101 Lecture 3 Measurement of Economic...

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