Prelim 1 notes - Chapter 1 Real GDP measures the total income of everyone in the economy adjusted for inflation Inflation rate measures how fast prices

# Prelim 1 notes - Chapter 1 Real GDP measures the total...

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Chapter 1 Real GDP- measures the total income of everyone in the economy, adjusted for inflation. Inflation rate- measures how fast prices are rising. Unemployment rate- measures the fraction of the labor force that is out of work. Deflation- is a period of prices falling. Recession- a period of decreased GDP. Depression- a period of prolonged and severe recession. Market clearing- assumes that markets are normally in equilibrium, so the price of any good or service is found where the supply and demand curves intersect. Flexible prices- adjust to equilibrium when market circumstances change. Sticky prices- do not adjust quickly to a changed equilibrium point. Microeconomics- is the study of how households and firms make decisions and how these decision makers interact in the marketplace. Chapter 2 Gross domestic product (GDP) - tells us the nation’s total income and the total expenditure on its output of goods and services. Consumer price index (CPI) - measures the level of prices. National income accounting- is the accounting system used to measure GDP and many related statistics. Stock- is a quantity measured at a given point in time. Flow- is a quantity measured per unit of time Value added- of a firm equals the value of the firm’s output minus the value of the intermediate goods that the firm purchases. Imputed value- is an estimate of the values of goods and services when including them in GDP. Nominal GDP- value of goods and services measured at current prices. Real GDP- is a measure of GDP not distorted by inflation. GDP deflator- aka implicit price deflator for GDP , is the ratio of nominal GDP to real GDP.
GDP Deflator = Nominal GDP/Real GDP so… Real GDP = Nominal GDP/GDP Deflator Nominal GDP = Real GDP * GDP Deflator Components of Expenditure- Consumption (C) Investment (I) Government Spending (G) Net exports (NX) Thus, letting Y stand for GDP…. Y= C+I+G+NX GNP = GDP + Factor Payments from Abroad – Factor Payments to Abroad GNP measures the total income earned by residents of a nation.
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