Econ 102 1nd Edition Lecture 2 Outline of Last Lecture I. Components and Measurement of Aggregate OutputII. Macroeconomic Data: AggregatesIII. Macroeconomic Data: The Circular FlowOutline of Current Lecture I. Real GDPII. 5.2 The Production ApproachIII. Putting It All Together: The GDP EquationCurrent LectureI. Real GDPa. the amount of “stuff” produced in the economyb. Aggregate (adding up) unlike objects (ex: chairs,lectures, apples, oranges) using base-year “value” pricei. The base-year should be close to the production yearii. This will make sure that the goods are reflected with price weights of the time1. EX: no plasma TVs in 19402. Best way to do that is “Chain-weight”a. which uses previous and current years as the base yearb. use the average of both3. Q2012 (prices from 2011)4. GDP2012 (prices from 2012)5. —————————————6. Q2013 (prices from 2012)7. GDP 2013 (prices from 2013)a. each year is linked to the year before it and after itII. 5.2 THE PRODUCTION APPROACH: MEASURING A NATION’S MACROECONOMIC ACTIVITY USING GROSS DOMESTIC PRODUCT (continued from last lecture)a. Economists divide GDP into four broad categories, each corresponding to different types of purchases represented in GDP:i. Consumption expenditures: purchases by households1. How much of computer production went to households?2. Anything purchased by a household except for housing itselfThese 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.a. housing is an investment (buy, maintain, sell, live off of profit for retirement)3. Education is considered consumptionii. Private investment expenditures: purchases by firms that are a factor of production1. any spending by a firm, must be optimistic about the future2. How much of computer production went to firms?3. Purchases of newly produced goods and services by firms.4. GDP consists of these three (mostly the first)a. First, there is spending on new plants and equipment during the year.b. Second, newly produced housing is included in investment spending.c. Finally, if firms add to their stock of inventories, the increase in inventories during the current year is included in GDP.i. Could be good1. buy and load up now and hopefully more demand/ sell them all laterii. Could be bad1. no one wants the item (ex: parkas)5. gross investmenta. Total new investment expenditures. 6. depreciationa. Reduction in the value of capital goods over a one-year period due to physical wear and tear and also to obsolescence; also called capital consumption allowance.b. EX: the chairs breaking in the lecture hall, only replace some because not always worth it7. net investmenta. Gross investment minus depreciation.iii. Government purchases: purchases by federal, state, and local governments1. Government purchasesa. Purchases of newly produced goods and services by local, state, and federal governments.b. Govt pays Eudey to dig hole then fill it- and pays her for it- Shows up in GDP2. Transfer paymentsa. Payments from governments to individuals that do not correspond to the production of goods and services. i. NOT included in GDP.ii. EX: A loan, one person giving up money to increase another’s consumptioniii. EX2: Trump instead of buying yachts etc, invests in abuilding with his name on itiv. Net exports: net purchases by the foreign sector (domestic exports minus domestic imports)1. subtracts imported thingsa. Trade deficiti. the excess of imports over exports.1. US/ richer countries2. import more than they exportb. Trade surplusi. The excess of exports over imports.1. China? 2. Poorer countriesb. It is the way that it is paid for that mattersi. EX: buying a computer or dinner1. Go buy a computer for selfa. to watch videos- consumption2. Use university money to buy a computera. for class- private investment expenditures- no taxi. could also be a firm lunchIII. Putting It All Together: The GDP Equationa. Y(income) = C + I + G + NXi. Y = GDPii. C = Consumptioniii. I = Investmentiv. G = Government purchasesv. NX = net exportsb. Y- C- G- I = NX < 0i. Y - C - Taxes + Taxes - G - I = Net Exportsii. ( A ) ( B )iii. “ Savings ” c. Y - C - Taxes = Household Savingsi. can be negative 1. Government Savingsa. can def be negative2. Savings - I = NX <
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