AGEC 217 1ST Edition Lecture 11Outline of Last Lecture I. MacroeconomicsA. Definition of InflationB. Definition of KeynesianC. Definition of NeoclassicalII. Size of the EconomyA. Definition of Gross Domestic Product (GDP)B. Specifications to the GDP DefinitionIII. Who is Buying the Goods and Services?A. Definition of ConsumptionB. Definition of InvestmentC. Definition of Net ExportsIV. The GDP IdentityA. GDP Identity EquationB. U.S. GDP Pie ChartOutline of Current Lecture I. GDP BreakdownII. Final Good CategoriesA. Non-durable Goods DefinitionB. Durable Goods DefinitionC. Structures DefinitionIII. Gross National ProductIV. Net National ProductA. Depreciation DefinitionB. Example CalculationV. Nominal GDP versus Real GDPCurrent LectureConsumer consumption tends to stay at a steady number over time. A year-to-year graph will show thatit doesn’t change drastically. This phenomenon is called the gentle elephant. Consumer consumption is can be motivated by government fiscal policy. Business investments tends to vary greatly over time. The government can motivate this through monetary policy. In general, the government tends to spend more money when the economy is down. When comparing exports and imports, exports are better for the economy. This is all in terms of GDP.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.Gross domestic profit only takes final goods into account. Final goods can be broken down into four categories. Non-durable goods are those that do not hold up for long periods of time. Examples of these include paper, clothes, and food. Durable goods are those that can hold up for long periods of time, such as a car or washing machine. Services is the third category and includes things like healthcare and education. Structures include those that are almost in between a good and service. Examples of these include houses andbuildings. Sometimes gross domestic profit isn’t the best way to measure a country’s economy. Gross national product, or GNP, is another method of measuring the economy. It is similar to GDP. We add in anything produced by domestic businesses and labor abroad when done by a citizen of the given country. We also subtract out any payments sent home to other countries by foreign labor and businesses located in the given country. In the United States there is a very small numerical difference between GDP and GNP. The difference is often very large in other countries though. Net National Product or NNP is another measure of a country’s economy. This is found by taking the country’s GDP minus the depreciation of all goods and services. Depreciation refers to the decrease of value in durable goods over time. An example calculation of how to find these various values is below.Find the GDP, NNP, and net export given the values below.Government purchases= $120 billion, Exports= $100 billion, imports= $120 billion, depreciation= $40 billion, consumption=$400 billion, and investment= $60 billion.Net Export= exports – imports= $100 billion- $120 billion= -$20 billionGDP= C + I + G + NE= $120 billion + $400 billion + $60 billion + -$20 billion= $560 billionNNP= GDP- depreciation= $560 billion- $40 billion= $520 billionIt is hard to determine what the real GDP is versus the nominal GDP. This is due to changes in prices. This can be managed through price indexes, such as GDP deflation. GDP deflation is equal to the price index/100. The real GDP is equal to the nominal GDP/ GDP