GDP is the value of the final goods and services produced in the economy during

Gdp is the value of the final goods and services

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GDP is the value of the final goods and services produced in the economy during a given period. 2. GDP is the sum of value added in the economy during a given period. 3. GDP is the sum of incomes in the economy during a given period. Ad 1. A final good is a good that is destined for final consumption (unlike intermediate goods). Ad2. Value added = the value of a firm’s production minus the value of the intermediate goods it uses in production. 24
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| Date 14-11-2016 faculty of economics and business Aggregate output (2) › We differentiate between real and nominal GDP: Real GDP: the value of all the goods produced in the economy (measured using constant prices) Nominal GDP: the value of all the goods produced in the economy (measured using current prices) 25
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| Date 14-11-2016 faculty of economics and business Aggregate output (3) Terminology: Nominal GDP is also called or GDP in current euros (prices). Real GDP is also called GDP in terms of goods, GDP in constant euros (prices), GDP adjusted for inflation. In this book: GDP will refer to real GDP, and Y t will denote real GDP in year t. Nominal GDP and variables measured in current dollars will be denoted by a currency sign in front of them—for example, $ Y t. for nominal GDP in year t . 26
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| Date 14-11-2016 faculty of economics and business Aggregate output (4) Real GDP per capita is the ratio of real GDP to the population of the country. GDP growth equals: Periods of positive (negative) GDP growth are called expansions (recessions). 27 1 1 ) ( t t t Y Y Y
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| Date 14-11-2016 faculty of economics and business What determines output? › Demand in the short run , say, a few years. › The level of technology, the capital stock and the labour force in the medium run , say, a decade or so. › Factors such as education, research, saving and the quality of government in the long run , say, a half century or more. 28
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| Date 14-11-2016 faculty of economics and business Summary The focus on the book is the following concepts: Aggregate output Unemployment Inflation To understand these concepts, we distinguish between: Short-run macroeconomic models Medium-run macroeconomic models Long-run macroeconomic models In the upcoming weeks, we will learn (in more detail): How these variables are determined How these variables are related. 29
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| Date 14-11-2016 faculty of economics and business The goods market (ch. 3) We develop a simple model for the goods market to explain the short run closed economy. In the short run, demand determines aggregate output i.e., firms are willing to produce any amount of goods and services that are demanded. In a closed economy, there is no trade with other countries. We will find that the economy can be stimulated using fiscal policy (increased government spending, lowering taxes).
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