05_Measuring_GDP

# 05_Measuring_GDP - MEASURING OUTPUT Intro to Macro(ECON 0110 Torsten Jochem Measuring Output b Content b 1 Motivation b 2 Gross Domestic Product s

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Unformatted text preview: MEASURING OUTPUT Intro to Macro (ECON 0110) Torsten Jochem Measuring Output b Content b 1. Motivation b 2. Gross Domestic Product s 2.1 The “Big Picture”: The Flows of the Economy 2 s 2.2 The Expenditure Approach s 2.3 The Income Approach s 2.4 Alternative Measures: GNP, NDP & NNP b 3. Potential GDP & Okun’s Law b 4. Limitations of GDP b 1. Motivation b Question: How much is the economy producing in a certain time period (month/quarter/year)? b Who? 3 Measuring Output s the U.S. Bureau of Economic Analysis (BEA) b Why? s determine how well the economy is doing (boom/recession?) s Without it, we cannot: s Evaluate macroeconomic policies by the government in respect to aggregate job- and income-creation. s Realize (predict?) when we are in trouble and take appropriate steps to address the problem. Measuring Output b 1. Motivation (cont’d) b The most commonly used measure of output is “ Gross Domestic Product ” (short, GDP). 4 b 2. Gross Domestic Product b GDP = s Is the Market Value… s of all … 5 Measuring Output s final … s Goods & Services … s Produced … s within a Country … s in a given Period of Time. b 2. Gross Domestic Product b GDP = s Is the Market Value… s of all … 6 Goal of GDP : Sum of the value of all economic activity . roblem: Measuring Output s final … s Goods & Services … s Produced … s within a Country … s in a given Period of Time. Problem: (1) How to compare a car with an apple? (2) What is the value of a good/service? Solution: Measure the value by how much people are willing to pay for it ( B prices). b 2. Gross Domestic Product b GDP = s Is the Market Value… s of all … 7 All economic activity ought to be included in the GDP number. This is hard, sometimes ven impossible. Measuring Output s final … s Goods & Services … s Produced … s within a Country … s in a given Period of Time. even impossible. Examples: 1. Do-It-Yourself work is not part of GDP. (mowing the lawn, growing vegetables at home; cooking at home instead of eating out; watching your children instead of paying child care; …). 2. If you rent an apartment, the rent is part of GDP. If you own a house, there is no recorded economic transaction –the BEA therefore estimates the rent you’d had to pay. b 2. Gross Domestic Product b GDP = s Is the Market Value… s of all … 8 Intermediate goods are not included in GDP; else, we would have double- counting! Measuring Output s final … s Goods & Services … s Produced … s within a Country … s in a given Period of Time.- Example: apple from farmer B veggie store (\$1) B final customer (\$1.10). Total value created \$1.10 and not \$2.10!- An exception is firm inventories: goods that are produced and intended for sale later are taken as “final” for the moment....
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## This note was uploaded on 03/26/2012 for the course ECON 0100 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

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05_Measuring_GDP - MEASURING OUTPUT Intro to Macro(ECON 0110 Torsten Jochem Measuring Output b Content b 1 Motivation b 2 Gross Domestic Product s

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