UB ECO 182 - chapter 8-2 (13 pages)

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chapter 8-2



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chapter 8-2

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Pages:
13
School:
University at Buffalo-SUNY
Course:
Eco 182 - Intro To Microeconomics
Intro To Microeconomics Documents
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Chapter 4 8 Measuring the Economy s Performance measures the level of economic activity measures standard of living measures Economic Growth The Circular Flow Diagram a visual model of the Economy is the mechanism that the The main way in which resources are distributed in the U S are through assume no government initially Two types of actors 1 own and sell Buy 2 sell Buy Two markets 1 2 Since every dollar a buyer spends is a dollar of for the seller this implies that Total earned by households on households Goods and Services Total by The value of the goods produced is called Thus GDP measures both 1 2 Gross Domestic Product GDP is the 1 value of all 2 goods and services 3 4 in a given period quarterly or annually 1 Goods are valued at their prices so that all goods are measured in the units Problem is that things that don t have a market value are from GDP This includes 1 Goods and services that are produced and 2 Goods and services that are sold 2 Final goods intended for the user Intermediate goods used as in the production of other goods GDP only includes goods they already embody the value of the used in their production counting intermediate goods results in Example 3 Produced only includes goods Excludes goods 4 Domestically Within a Country regarless of who Excludes even if produced by producer Important questions to ask are 1 Does this activity generate new economic activity in the domestic economy 2 Has it already been counted 3 Can it be measured In Class Example Say whether or not the following transactions would be counted in 2010 GDP 1 2 3 4 5 6 7 McDonalds buys buns for it s Big Macs You hire a maid to clean your house You mow your own lawn You buy a new BMW that was built in Ohio You buy an IBM computer that was made in China You buy a 2006 Subaru Tribeca for 20 000 You buy stock issued by Google Summary Goods Excluded From GDP 1 2 3 4 5 GDP as a measure of Economic wellbeing Higher GDP means higher and higher This may imply that an economy has more money to spend on GDP is usually related with other measure of Quality of life such as GDP is an imperfect measure of wellbeing Limitations It ignores things like 1 The quality of the 2 of Income Thus GDP may well being 3 time 4 production But GDP may also well being Many countries are looking for a better measure of Society s well being that incorporates many measures of well being GNH Gross National Happiness value is proposed to be an index function of the total average per capita of the following measures 1 Economic Wellness 2 Environmental Wellness 3 Physical Wellness 4 Mental Wellness 5 Workplace Wellness 6 Social Wellness 7 Political Wellness How is GDP measured GDP measures both and Method I Expenditure Method of Computing GDP GDP is measured by adding up all of the by all of the economy Four Sectors spending 1 2 3 4 These spending levels all add up to GDP denoted Y Y Consumption C Spending by households on goods and services 1 2 3 Exception purchases of Investment I Additions to Capacity 1 Capital Expenditures a b 2 3 Inventory are goods produce but not Change in inventories can be positive or negative If inventories are increasing then they will be If inventories are being used up then they should be Government Purchases G Spending on the goods and services provided by the government at the level such as spending on This will exclude spending by the government on such as because Net Exports NX where exports represent goods produced and imports are the portions of C I and G that are spent on Goods and Services Adding up all the components of GDP gives GDP Y The largest component of GDP has always been The most volatile component of GDP is and has recently made up a part of GDP Method II Measuring GDP using the Income Approach GDP is measured by adding up all of the Income earned by the different mostly Four Resources Income 1 2 3 4 Gross Domestic Income GDI A few adjustments need to be made to get to GDP called Non Income Expenses 1 Depreciation Money spent to replace old capital 2 Indirect Business Taxes Money included in the of a good but not received as Since this money goes to and to the it would not be counted as income so must be added to GDI to get GDP Nominal vs Real values Nominal Values Measurements in terms of the at which goods are sold expressed in dollars also called money values Nominal GDP Real Values Measurements have been made for changes in the average of between years expressed in dollars Done by using prices from a which is chosen arbitrarily Real GDP Price Index GDP Deflator Nominal GDP Real GDP 100 In class Example use 2013 as the base year Q Gas P gas Q pizza Ppizza Q soda Psoda 2013 1000 3 75 10000 2 00 5000 1 50 2014 1200 2 75 1100 2 50 4900 2 00 Nominal GDP2013 Nominal GDP 2014 Real GDP 2013 Real GDP 2014 GDP Deflator 2013 GDP Deflator 2014 Change in Nominal GDP Change in Real GDP Change in GDP Deflator Important notes from looking at graph 1 Nominal GDP usually grows than Real GDP due to 2 Nominal GDP Real GDP in since it uses 3 Real GDP Nominal GDP before 2000 4 Real GDP Nominal GDP after 2000 Measuring Economic Well being 1 is a better measure of Economic Activity than GDP Real GDP has grown approximately per year since 1965 Does this mean that standard of living has increased this much 2 Real GDP is a better measure then Real GDP because it takes into consideration changes in Better when looking at changes in GDP 3 Per capita Real GDP based on is a better way to compare standards of living in different countries Purchasing Power Parity Adjustment in exchange rate conversions that takes into account differences in of living across countries Should this be used to compare economic strength


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