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Title: Spending, Income, and GDP
Description: College level macroeconomics notes good for intro level economics courses.
Description: College level macroeconomics notes good for intro level economics courses.
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Spending, Income, and GDP
Thursday, February 11, 2016
11:59 AM
Gross Domestic Product: Measuring the Nation’s Output
•
US publishes GDP, the rate of inflation, and the rate of unemployment
•
GDP: the market value of the final goods and services produced in a country during a
given period
•
Market Value: the selling prices of goods and services in the open market
•
To aggregate the quantities of many goods and services, economists add up the market
value of different goods and services in the open market
○
○
•
Ex
...
25/apple) + (6 bananas x $0
...
00/pair) = $64
Not all economically valuable goods and services are bought and sold in markets
○
Ex
...
of grain, flour, and bread, bread is the final good because it is the only one
used by consumers
Intermediate Goods or Services: goods or services used up in the production of final
goods and services; not counted as part of GDP
○
•
Economic statisticians add to the GDP the costs of providing those goods
and services as rough measures of their economic value
Ex
...
factories, machines, houses
○
•
Difficult to classify as intermediate or final
For purposes of measuring GDP, economists classify newly produced capital
goods as final goods even though they are not consumed by the ultimate user
Value Added: for any firm, the market value of its product or service minus the cost of
inputs purchased from other firms; added together, it should equal GDP but accounts for a
○
Ex
...
Social Security benefits, unemployment benefits, pensions, and welfare
They don’t include interest paid on the government debt
Net Exports: exports minus imports
○
○
Imports are purchases by domestic buys of goods and services that were produced
abroad
○
•
Exports are domestically produced final goods and services that are sold abroad
Can be negative, since imports can exceed exports
Y = C + I + G + NX
○
Y = gross domestic product, or output
○
C = consumption expenditure
○
I = investment
○
G = government purchases
○
NX = net exports
•
GDP can be thought of as a measure of total production, measure of total expenditure, or
the incomes of capital and labor
•
Labor Income: equal to about two-thirds of GDP and comprises wages, salaries, and the
incomes of the self-employed
•
Capital Income: equal to about one-third of GDP and is made up of payments to owners of
physical capital (such as factories, machines, and office buildings) and intangible capital
(such as copyrights and patents)
○
Includes items such as profits earned by businessowners, the rents paid to owners
of land or buildings, interest received by bondholders, and the royalties received by
the holders of copyrights or patents
Nominal GDP Verses Real GDP
•
Real GDP: a measure of GDP in which the quantities produced are valued at the prices in
○
Includes items such as profits earned by businessowners, the rents paid to owners
of land or buildings, interest received by bondholders, and the royalties received by
the holders of copyrights or patents
Nominal GDP Verses Real GDP
•
Real GDP: a measure of GDP in which the quantities produced are valued at the prices in
a base year rather than at current prices; real GDP measures the actual physical volume
of production
•
Nominal GDP: a measure of GDP in which the quantities produced are valued at currentyear prices; nominal GDP measures the current dollar value of production
•
This way, economists can adjust for inflation to find GDP over a period of time
○
Economists pick a particular year called the base year, and use the prices from that
year to calculate the market value of output
Real GDP and Economic Well-Being
•
Many factors that contribute to people’s economic well-being are not priced and sold in
markets and thus are largely or even entirely omitted from GDP
○
○
•
Maximizing real GDP is not, therefore, always the right goal for government
policymakers
Whether or not policies that increase GDP will also make people better off has to
be determined on a case-by-case basis
There are some factors that are not included in GDP but do affect whether people are
better off
○
Leisure Time
§
○
Increased leisure time allows workers to pursue other worthwhile activities
like being with family and friends, education, etc
Title: Spending, Income, and GDP
Description: College level macroeconomics notes good for intro level economics courses.
Description: College level macroeconomics notes good for intro level economics courses.