ECON 1051 1nd Edition Lecture 32 Outline of Last Lecture I. Excel Worksheet LabOutline of Current Lecture I. GDP: Measuring Total Production and Income II. GDP: Measuring Total Production III. Components of GDP IV. What You Need To KnowV. Shortcomings of GDPCurrent LectureI. GDP: Measuring Total Production and Incomea. Game Theory to Analyze Oligopoly i. Cooperative Equilibrium 1. An equilibrium in a game in which players cooperate to increase their mutual payoff ii. Non-cooperative Equilibrium 1. An equilibrium in a game in which players do not cooperate but pursue their own self-interest iii. Prisoners’ Dilemma 1. A game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off b. Terms to Knowi. Microeconomics1. The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.ii. Macroeconomics 1. The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.iii. Business Cycle1. Alternating periods of economic expansion and economic recession.iv. Expansion These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.1. The period of a business cycle during which total production and total employment are increasing.v. Recession 1. The period of a business cycle during which total production and total employment are decreasing.vi. Economic Growth 1. The ability of an economy to produce increasing quantities of goods and services.vii. Inflation Rate 1. The percentage increase in the price level from one year to the next II. GDP: Measuring Total Productiona. GDP Definitioni. The market value of all final goods and services produced in a country during a period of time, typically one year.ii. Is measured using market VALUES, not quantities 1. The word value is important in the definition of GDP b. GDP Includes Only the Market Value of Final Goodsi. Final good or service1. A good or service purchased by a final userii. Intermediate good or service1. A good or service that is an input into another good or service, such as a tire on a truck c. GDP Includes Only Current Productioni. Includes only production that takes place during the indicated time periodIII. Components of GDP a. Consumptioni. Spending by households on goods or services, not including spending on new houses b. Investmenti. Spending by firms on new factories, office buildings, machinery and additions to inventories, and spending by households and firms on new houses c. Government Purchasesi. Spending by federal, state and local governments on goods and servicesd. Net Exports of Goods and Servicesi. =Exports – Imports ii. GDP Equation: 1. Y = C + I + G + NXIV. What You Need To Knowa. Consumer spending on services is greater than the sum of spending on durable and nondurable goodsb. Business fixed investment is the largest component of investment c. Purchases made by state and local government are greater than purchases made by the federal government d. Imports are greater than exports, so net exports are negative V. Shortcomings of GDPa. Household Productioni. Household production refers to goods and services people produce for themselvesb. The Underground Economy i. Buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal.c. What is NOT included in GDP i. The value of leisure ii. Pollution or other negative effects of productioniii. Changes in crime and other social problems iv. GDP measures the size of the pie but not how the pie is divided
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