mankiw7e-chap02 - Chapter2covers Chapter2covers the meaning...

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Chapter 2 coversChapter 2 covers::…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 IncomeTwo 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 FlowHouseholdsFirmsGoodsLaborExpenditure ($)Income ($)
Stages of ProductionExample: Production of Notebook Paper
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 $6.00. The engineer eats the bread. Compute value added at each stage of production and GDP
C
I
G
U.S. consumption, 200842.620.87.270.5%6,069.62,965.11,023.2$ 10,057.9ServicesNondurablesDurablesConsumption% of GDP$ billions
U.S. Investment, 2008–0.33.410.914.0%–47.0487.71,552.8$1,993.5InventoryResidentialBusiness fixedInvestment% of GDP$ billions
Investment vs. CapitalNote: Investment is spending on new capital.Example (assuming no depreciation): 1/1/2009: economy has $500b worth of capitalduring 2009:investment = $60b1/1/2010: economy will have $560b worth of capital
Stocks vs. FlowsA flowis a quantity measured per unit of time. E.g

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