Chap 21-22 Macroecomonics

Classify each of the following items as a final good or service or an intermediate good or​ service, and identify which is a component of consumption​ expenditure, investment, or government expenditure on goods and services. A. Steel sheets bought by General MotorsSteel sheets bought by General Motors B. Upper A new limousine for the presidentA new limousine for the president C. Banking services bought by a studentBanking services bought by a student D. New cars bought by Hertz comma the car rental firmNew cars bought by Hertz, the car rental firm

A is an intermediate good, B is a final good that is government expenditure C is a final service that is consumption expenditure and D is a final good that is investment

Saving

Amount of income that is not paid in net taxes or spent on consumption goods and services

Gross national product (GNP)

Gross national product equals gross domestic product plus net factor income from​ abroad,

The national accounts of Parchment Paradise are kept on​ (you guessed​ it) parchment. A fire destroys the national statistics office. The accounts are now incomplete but they contain the data on the right. Calculate GDP​ (expenditure approach) and depreciation. GDP​ (expenditure approach) is ​$9830 Depreciation is ​$150 .

Item ​(dollars) GDP​ (income approach) 8,230 Consumption expenditure 8,700 Indirect taxes less subsidies 800 ​Interest, rent, and profit 280 Investment 200 Government expenditure 230 Wages 7,000 Net factor income from abroad 100 Net exports 700

Exports of goods and services

Items that firms in the United States produce and sell to the rest of the world. Firms in the United States sell aircraft, computers, software, and financial services to the rest of the world. These sales are part of U.S. exports of goods and services.

the U.S. National Income and Product Accounts report the components of GDP. GDP is the market value of all the final goods and services produced within a country in a given time period. Consumption expenditure is the expenditure by households on consumption goods and services. Expenditure on retail goods appears as consumption expenditure in the U.S. National Income and Product Accounts and as the expenditure flow from households through goods markets to firms. Expenditure on goods purchased at garage sales is expenditure on used goods. These goods were included in the measure of GDP in the year in which they were produced. So expenditure on used goods is not reported in the current U.S. National Income and Product Accounts and it does not appear in the current circular flow of expenditure and income.

National income equals gross national product minus depreciation minus statistical discrepancy. Gross national product equals gross domestic product plus net factor income from​ abroad, which is ​$11.711.7 trillion. The statistical discrepancy is $ 0.1$0.1 trillion and depreciation is ​$1.41.4 trillion. So national income equals ​$11.711.7 trillionminus−​$1.41.4 trillionminus−​($ 0.1$0.1 ​trillion), which is not ​$1.41.4 trillion.

GDP as measured by the income approach equals the sum of all​ incomes, indirect taxes less​ subsidies, and depreciation.

So depreciation equals GDP​ (income approach) minus the sum of​ wages, interest, rent and​ profit, and indirect taxes less subsidies.

Net Taxes

Taxes paid minus cash benefits rcv'd from government

Government expenditure on goods and services

The expenditure by all levels of government on goods and services. example: Governments in the United States buy lots of goods and services. Goods include highways, airports, bridges, and submarines. Services include law and order, air traffic control, and educational services (in public schools and state universities).

Consumption expenditure

The expenditure by households on consumption goods and services. example: f you buy $30 worth of food at the supermarket and spend $10 on entertainment each week, then your consumption expenditure is $40 a week.

Gross domestic product (GDP)

The market value of all the final goods and services produced within a country DURING a given time period. GDP measures the value of total production but also total income and total expenditure. ONLY GOODS & SERVICES THAT ARE PRODUCED "WITHIN A COUNTRY" COUNT AS PART OF THAT COUNTRYS GDP

Investment

The purchase of new capital goods—tools, instruments, machines, buildings, and additions to inventories. DOES NOT INCLUDE STOCKS & BONDS

statistical discrepancy

The statistical discrepancy is calculated as the GDP expenditure total minus the GDP income​ total,

Net exports of goods and services

The value of exports of goods and services minus the value of imports of goods and services. Example: In 2010, U.S. exports of goods and services were $1,839.8 billion and imports of goods and services were $2,356.7 billion, so net exports of goods and services were -$516.9 billion.

Nominal GDP

The value of final goods & services produced in a given year expressed in terms of prices of that same year

Real GDP

The value of the final goods and services produced in a given year expressed in terms of the prices in a base year

Nominal GDP

The value of the final goods and services produced in a given year expressed in terms of the prices of that same year. Definition Example The value of the final goods and services produced in 2010 in the United States valued at 2010 prices was $14.53 trillion.

Real GDP

The value of the final goods and services produced in a given year expressed in the prices of a base year. The value of the final goods and services produced in the United States in 2010, measured in prices from the base year 2005, was $13.09 trillion.

equations Y​ = C​ + S​ + ​NT, and​ rearranging, S​ = Y−C−NT.

Total Income: Y=C +S +NT Solving for Net Taxes NT= Y-C - S (savings) (Y = total income) GDP =the same as Total Income Solving for Savings: Y=C+S+NT Solving for Consumption expenditure: Y= C+i+G+NX

Expenditure Equals Income

Y= C + S +NT

Final good or service

a good or service that is produced for its final user and not as as component of another good or service

intermediate good or service

a good or service that is used AS A component of a final good or service

Circular Flows in US Economy

four groups buy final goods & services produced" households, firms, governments and the rest of the world. Four types of expenditures are: consumption, investment, Government expenditure of good & services, Net exports of good & services