Financial Assets- purchases of stocks and bondsGovernment Purchases- Federal, State, local gov’t on final goods/servicesTransfer payments- GOV’T spent NOT G/S (Social Security, insurance)Net Exports- Exports – Imports (NX = X – IM)Saving- Private saving, equal to all disposable incomeSpr = (Y – T) – CPublic Saving- equal to surplus of taxes over gov’t spendingSpu = T – GNational Saving- S, is equal to Spr + SpuS = Y – C – GMeasuring GDP (Output)Method 1: Add up market values of all final G/S producedMethod 2: Add up total amount spent by each of the four groups on final goods and services and subtracting spending on importsMethod 3: Incomes of capital and labor (whether sold or not)Revenue is earned by workers and owners of capitalGNP- labor income + capital incomeStock Variable- measure of an amount that exists at an instant of timeWealth, debt, savings, populationStocks vs. Flow-Snow Falling = Flow (Rate of snow fall)Snow Accumulation = Stock (Amount of snow that fell)Consumption- durable and non-durable goods, servicesIncome and OutputWhen output is produced, equal income is generatedFirms use flow of services (labor, land, capital) to produce outputWages and salaries, rent, interest, profile are earnedIncomes earned = OutputExpenditure = IncomeY = C + I + G + NXValue of production = income = expenditureLabor IncomeWagesSalariesIncomes of self-employedCapital IncomePayments relate to physical capital (factories, machines, offices)Profits of business ownersRent Paid to land or building ownersPayments on intangible capital (copyrights, patents)Nominal GDP-quantities produced valued at current-year pricesMeasures current dollar value of production, not adjusted inflationReal GDP-Measure of GDP where quantities produced are valued at the prices in a base year rather than at current pricesMeasures physical volume of productionOutput value adjusted for inflationMaterialisticThree Faces of GDPProduction (Market value of final G/S)Expenditure (Consumption, Investment, Gov’t purchases, exports)Income (Labor and Capital Income)UnemploymentIndicator of labor marketLow employment indicators includeJob securityJob AvailabilityImproving wages and working conditionsMeasuring UnemploymentThe Bureau of Labor Statistics and Bureau of the Census collect data60,000 random households. Everyone 16 or older is placed in three categories: Employed, Unemployed, Out of labor forceEmployed- work in last week or on vacationUnemployed- did not work during preceding week but made effort to find workOut of Labor Force- didn’t work for past week, didn’t look for work in last 4 weeks (students, retirees, disabled, unpaid homemakers, discouraged)Unemployment Rate= unemployed / labor forceLabor Force- Total # of employed and unemployed peopleLabor Force = employed + unemployedParticipation Rate% of working age population% of working-age population that is employed or looking for workParticipation Rate = Labor Force / Population 16 and overCosts of UnemploymentEconomic- income, gov’t supportPsychological- self-esteem, depressionSocial- increase in crime, alcohol and drug abuseLong term unemployed- 6 monthsHyperinflation- Prices rise 50% per month (extremely high)Effects of inflationOn measurementOn interpreting price changesOn economic performanceOn welfareOn Interest RatePurchasing Power- Real values depend on price (real = purchasing power)Real value of money declines when prices increaseFixed nominal (money) incomes decline in real value when prices riseMeasuring InflationGDP Deflator- index of prices obtained indirectly from calculation of real GDPConsumer Price Index (CPI)- Measure of average prices paid by urban consumers for a fixed market basket of consumer goods and services relative to its cost in a base period.CPI = current cost of fixed basket DIVIDED BY base-year cost of fixed basketMeasures changes in cost of market basketUsed to eliminate effects of inflationReading CPI- defined to equal 100 for a period called the reference base periodReference base period- CPI is defined to equal 100 (1982-1984)Calculate CPI- (New – Old) / Old = Rate of Inflation[Cost of CPI basket at current period prices / Cost of CPI basket at base period prices] x 100Find cost of CPI basket at base year pricesFind cost of CPI basket at current period pricesCalculate CPI for base period and current periodConstructing CPI3 stages- Selecting the CPI basket, conducting monthly price survey, calculate CPICPI Basket- Importance of items in CPI basket same as budget of householdCPI-U: Measures the average price paid by all urban householdsCPI-W: Measures average price paid by urban earners and clerical workersMonthly Price Survey- BLS employees check prices of 80,000 G/S in CPI basket in 30 areasDeflation- Prices are falling, inflation rate is negativeDisinflation- Prices are rising, but not as rapidly as they had been risingInflation- Black line is rising; red line above zeroDeflation- Black line falling; red line below zeroDisinflation- Black line rising; red line above zeroSymbolsY = GDPC = Consumption expenditureI = InvestmentG = Gov’t purchasesNX = Net ExportsX = ExportsIM = ImportsD = Domestic purchasesF = Foreign PurchasesEquationsCd + Id + Gd + X = YAll output is purchasedCf + Id + Gd – IM = 0Definition of ImportsC + I + G + NX = YObtained by adding previous equations (NX = X – IM)Econ Notes 02/22/2012Financial Assets- purchases of stocks and bondsGovernment Purchases- Federal, State, local gov’t on final goods/servicesTransfer payments- GOV’T spent NOT G/S (Social Security, insurance) Net Exports- Exports – Imports (NX = X – IM) Saving- Private saving, equal to all disposable income -Spr = (Y – T) – C Public Saving- equal to surplus of taxes over gov’t spending -Spu = T – GNational Saving- S, is equal to Spr + Spu -S = Y – C – G Measuring GDP (Output) -Method 1: Add up market values of all final G/S produced -Method 2: Add up total amount spent by each of the four groups on final goods and services and subtracting spending on imports -Method 3: Incomes of capital and labor (whether sold or not)oRevenue is earned by workers and owners of capital GNP- labor income + capital income Stock Variable- measure of an amount that exists at an instant of time-Wealth, debt, savings, populationStocks vs. Flow- -Snow Falling = Flow (Rate of snow fall)-Snow Accumulation = Stock (Amount of snow that fell) Consumption-