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Lectures_Outline_Chpt2

Lectures_Outline_Chpt2 - A Tour of the Book Chapter 2...

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A Tour of the Book Chapter 2
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Outline Measuring a country’s output (GDP): Three definitions Real vs. Nominal GDP, Growth rate Some Caveats Inflation GDP deflator Consumer Price Index (CPI) Unemployment Definition and measurement Policy Issues
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How to measure aggregate production ? To measure aggregate production, need to solve How can we sum apples and oranges ? How to avoid double counting ? A simple example: Firm 1: Orange Sales Revenue $50 Expenses $40 Wages $40 Profit $10 Firm II: Orange Juice Sales Revenue $100 Expenses $80 Wages $30 Orange Purchases $50 Profit $20
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Gross Domestic Product (GDP): Three Definitions 1. GDP is the value of all final goods and services produced in the economy during a given period A final good is a good for final consumption. 2. GDP is the sum of all value added in the economy during a given period. Value added = value.of. firm’s production – value of intermediat e goods 3. GDP is the sum of incomes in the economy during a given period In U.S.: Labor Income (≈64%), Capital Income (≈29%), Indirect Taxes (≈7%)
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An Example I. Value of final goods II. Sum of value added ( sales. revenues value.of. intermediate goods) III. Sum of Income Firm 1: Oranges Sales Revenue $50 Expenses $40 Wages $40 Profit $10 Firm II: Orange Juice Sales Revenue $100 Expenses $80 Wages $30 Orange Purchases $50 Profit $20
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Nominal GDP vs. Real GDP Nominal GDP ($Y t ) is the sum of quantities of final goods produced times their current prices.
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Lectures_Outline_Chpt2 - A Tour of the Book Chapter 2...

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