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