Economics 101: Understanding Gross Domestic Product and Its Components, Study notes of Economics

Download Economics 101: Understanding Gross Domestic Product and Its Components and more Study notes Economics in PDF only on Docsity! Introductory Class 2 • Microeconomics The study of how households and businesses make choices, how they interact in markets, and how the government attempts to influence their choices. • Macroeconomics The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. • Business cycle Alternating periods of economic expansion and economic recession. 5 • Measuring Total Production: Gross Domestic Product • GDP IS MEASURED USING MARKET VALUES, NOT QUANTITIES • GDP INCLUDES ONLY THE MARKET VALUE OF FINAL GOODS • Final good or service A good or service purchased by a final user. • Intermediate good or service A good or service that is an input into another good or service, such as a tire on a truck. • GDP INCLUDES ONLY CURRENT PRODUCTION PRODUCTION AND PRICE STATISTICS FOR 2007 (1) PRODUCT (2) QUANTITY (3) PRICE PER UNIT Eye examinations 100 $50.00 Pizzas 80 10.00 Textbooks 20 100.00 Paper 2,000 0.10 PRODUCT (1) QUANTITY (2) PRICE PER UNIT (3) VALUE Eye examinations 100 $50 $5,000 Pizzas 80 10 800 Textbooks 20 100 2,000 6 7 • Production, Income, and the Circular Flow Diagram • Transfer payments Payments by the government to individuals for which the government does not receive a good or service in return. 10 • Components of GDP • GOVERNMENT CONSUMPTION AND GROSS INVESTMENT, OR “GOVERNMENT PURCHASES” • Government purchases Spending by federal, state, and local governments on goods and services. NXGICY  11 • Components of GDP • NET EXPORTS OF GOODS AND SERVICES, OR “NET EXPORTS” • • Net exports Exports minus imports. • An Equation for GDP and Some Actual Values 12 The table provides a more detailed breakdown and shows several interesting points:  Consumer spending on services is greater than the sum of spending on durable and nondurable goods.  Business fixed investment is the largest component of investment.  Purchases by state and local governments are greater than purchases by the federal government.  Imports are greater than exports, so net exports are negative.