Econ 202 1st Edition Lecture 12Outline of Last Lecture I. Exam 1 Outline of Current Lecture I. What makes macroeconomics different from microeconomicsII. What a business cycle is and why policy makers seek to diminish the severity of business cyclesIII. How long-run economic growth determines a country’s standard of livingIV. The meaning of inflation and deflation and why price stability is preferredV. The importance of open economy macroeconomics and how economies interact through trade deficits and trade surplusesCurrent LectureI. How Do You Measure an Economy?a. 2010 headline: “China Passes Japan as Second-Largest Economy.b. How can you compare the sizes of two economies when they produce different things?i. By comparing thevalue of their production.ii. GDP (gross domestic product) is the most important and common way to estimate an economy’s size.II. National Income Accountinga. The national income and product accounts (NIPA), simply as national accountb. other nationsc. business cycleIII. The National Accountsa. Keep track of:i. Spending of consumersii. Sales of producersiii. Business investment spendingThese 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.iv. Government purchasesv. A variety of other flows of money between different sectors of the economyHouseholds earn income from various sources. a. Disposable income: total household income minus taxes; available to spend on consumption or to save.The National AccountsHouseholds don’t spend all of their disposable income. Some of it is saved in the financial markets.Private savings: disposable income minus consumer spending (disposable income that isnot spent on consumption).Exports:goods and services sold to other countries. Imports:goods and services purchased from other countries.Inventories: stocks of goods and raw materials held to facilitate business operations.Investment spending: spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories.IV. What Is GDP?a. Final goods and services: goods and services sold to the final, or end, user.b. Intermediate goods and services: goods and services (bought from one firm by another firm) that are inputsfor production of final goods and services.GDP is like annual income:it measures a rate of production during a given period.c. For the current quarter’s GDP data, visit the U.S. Bureau of Economic Analysis hereGDP: WHAT’S IN AND WHAT’S OUTIncludedDomestically produced final goods and services, including capital goods, new construction of structures, and changes to inventoriesNot IncludedIntermediate goods and servicesInputsUsed goodsFinancial assets, such as stocks and bondsValue added of a producer is the value of its sales minus the value of its purchases of intermediate goods and