Macro Econ ch 1-6
Nominal GDP
value of goods and services produced during a given year VALUED AT CURRENT YEAR PRICES
Expenditure approach
GDP measures the value of production, which also equals total expenditure on final goods/services by -households -firms -gov -foreigners
Final good or intermediate good? ex: coffee beans that you buy form starbucks
This is an example of a final good
Final good or intermediate good? ex: coffee beanas that starbucks buys to make coffee
This is an example of an intermediate good
Definition of net
after deducting the depreciation of capital
Market
any arrangement that enables buyers and sellers to get information and do business with each other
Definition of gross
before deducting the depreciation of capital
Marginal benefit
benefit you receive from buying one or more item -take action if MB>MC
Inflation
change in the price level
Hyperinflation
extremely high inflation
Consumption
(C) spending by households on goods and services except for new housing
Government purchases
(G) goods and services bought by the government -ex: education, defense -do not include transfers or interests paid on bonds -ex: gov pays the salary of a high school teacher -gov pays unemployment benefits -gov pays pension benefits
Investment
(I) purchase of physical capital -business fixed investment -inventory investment -residential investment
GDP deflator
(Nominal GDP/real GDP) * 100 -measures the price level -equals 100 in the base year
Net exports
(X-M) exports-imports -can be negative
GDP
-(Gross domestic product) -market value (dollar value) of all final goods and services produced in a country in a given time period
Income approach
-GDP sum of incomes that firms pay for the factors of production= labor income + capital income -capital income pays for physical capital and intangibles (profits for business owners, interest for bond holders, rent for land, royalties). -GDP dollar value of total production=total expenditure= total income
final good (or service)
-bought by its final user -ex: birthday card
Competitive market
-has many buyers and many sellers -no single buyer or seller can influence the price
Not included in GDP:
-illegal goods/services, home production, intermediate goods, financial transactions, goods/services produced in other countries, goods/services produced in a different year or quarter.
Economic growth
-increase in real GDP per person over time -increase in the standards of living -the economic growth rate tell us how rapidly the total production is expanding
intermediate good
-used as a component of a final good or service -ex: paper used to make a birthday card
The law of demand
Price increases, Qd decreases
The Law of Supply
Price increases, Qs increases
Equilibrium
Qd=Qs
C) a new computer sold to a business firm
Which of the following is an example of a final good? A) a new computer software sold to a computer manufacturer for installation in new computers B) Fresh vegetables purchased by a restaurant C) a new computer sold to a business firm
Expenditure method
Y= C + I + G + NX Y= C= I= G= NX=
Disinflation
decrease in the inflation rate (increase in the price level slows down)
Deflation
decrease in the price level
Real GDP
the value of final goods and services produced in a given year valued at the prices of a reference year. USED FOR COMPARISONS OVER TIME