Test 3 Notes - Gross Domestic Product - Economics Principles | ECON 2030, Study notes of Economics

Download Test 3 Notes - Gross Domestic Product - Economics Principles | ECON 2030 and more Study notes Economics in PDF only on Docsity! ECON 2030 Nov 1 Notes Gross domestic product (GDP) 1. the market value of all final goods and services produced within a country’s borders in a specified period of time a. the Bureau of Economic Analysis collects the GDP data and reports it quarterly b. only the things produced within the country counts toward GDP; doesn’t matter who c. only counting value sold to final user  only counting market value  so goods/services in legal exchanges  count all of the dollars spent and all of the dollars earned d. not declared…not a part of GDP 2. two methods of measuring GDP: “a dollar spent is a dollar earned” a. income approach i. who is earning  70% of GDP is income earned by individuals (wages and salaries)  income is also earned by business (profit)  land owners earn income (rent)  lenders own income (interest) ii. add all of those up b. expenditure approach i. who is spending  tells us about demand; behavior in terms of willingness and ability to purchase  don’t care about stuff…care about who is doing the purchasing ii. consumption (C)  individuals purchasing iii. investment (I)  businesses purchasing  one good individuals purchase that isn’t included in consumption: new residential housing  net inventory change: hasn’t technically been sold; not counting spending but counting GDP  we’re concerned with what has been produced, not sold  for accounting purposes, we count it like it was purchased  not talking about financial investment because a stock is saving, not spending iv. government spending (G)  governments purchasing (not just federal, but state and local)  for every dollar spent during consumption, only .30 cents is being spent for governments  state and local government purchase about 60% more than federal government v. export (X)  other businesses outside of the country purchasing  almost have GDP except some of goods/services purchased are not produced within US vi. import (IM)  product not produced within US but consumed in US vii. y = C + I + G + X – IM Economic growth, GDP< and inflation rates 1. economic growth = percentage change in real GDP a. focus on the change in the stuff we’re producing  keep prices held constant which will give us real spending (aka real GDP)………change in prices gives us nominal GDP b. only interested in real GDP for economic growth 2. expansion and recession a. expansion - period of time when economy is growing at or above its long run level b. economic recession - period of time when economy is growing below its long run level i. technical recession - 2 or more consecutive quarters in which economic growth is negative  Nominal GDP - prices are changing, quantities are the same  Real GDP - prices are the same, quantities are the same o If Real GDP > Nominal  prices went down; inflation rate is (-) (deflation) o If Nominal > Real GDP  prices went up; inflation rate is (+) o Nominal – rate of inflation = Real GDP o Nominal – Real GDP = rate of inflation