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. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Lecture!3!!Outline(of(Last(Lecture((I. Big!Problems:!Recession!and!Inflation!II. Government!Deficits!III. National!Income!Accounting!IV. Real!GDP!and!Nominal!GDP!!Outline(of(Current(Lecture((I. GDP!II. Underground!Economy!III. Nominal!GDP!IV. Real!GDP!!!!!Current(Lecture!1. GDP:!a. GDP:!The!total!market!value!of!all!final!goods!and!services!produced!in!a!given!time!period.!i. Example:!A!Car,!The!dealership!buys!tires!from!Firestone.!The!cost!of!the!tires!and!labor!are!then!factored!into!the!final!price!of!the!car.!ii. GDP!is!looked!at!in!the!terms!of!Quarterly!or!Yearly!data!for!a!given!time!period.!!2. Underground!Economy:!a. Underground!Economy:!The!part!of!a!country’s!economy!that!is!untaxed!by!the!government.!!i. 2/3!of!the!unreported!income!comes!from!legitimate!sources.!3. Nominal!GDP:!Measured!in!current!prices!for!a!given!time!period!(year!or!month).!!a. Example:!GDP!(1980)!=!P!(1980)!!x!!Q!(1980)!!!![1980!represents!the!Year]!4. Real!GDP:!The!whole!market!value!of!final!produced/priced!goods!and!services,!which!are!measured!in!constant!prices.!a. Example:!GDP!(1980)! GDP!2013!5. Example:!Nominal!and!Real!GDP!!GDP!! ! Population! Per!Capital!GDP!! ! 1933:!$56!Billion! 126!Million! $444!! ! 1990:!$5,600!Billion! 250!Million! $22,400!Prices(have(increased(by(800%(since(1933(in(the(US(but(NOT(for(everything.!!!((Econ(104(((((11th(Edition(! !!!!!!!Real!GDP!(1990)!=!Nominal!GDP!(1990)!!!!1990!Price!Level/!1933!Price!Level!!!! ! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!=!!5600!Billion!/(Divided)!! ! ! ! !!!!!!!900/100!(Nine!Hundred!over!One!Hundred)!! ! ! ! !!!!!=!!!5600/9!! ! ! ! !!!!!=!!!!$622!Billion!–!The!Real!GDP!in!1990!based!on!1933!Prices!! !!!!!!!!!!For!Per!Capita!GDP!=!22,400/(Divided)!! ! ! ! !!!!!!!!900/100!(Nine!Hundred!over!One!Hundred)!! ! ! ! !!!!!=!$2,488!–!Real!Per!Capita!(Based!on!1990!and!1993!Prices)!!!!!!!!!!!!!!!!!!!!!!!! ! ! !!!!!!!!! ! ! !