1303AFE Lecture Notes - Lecture 3: Business Cycle, Potential Output, Political Freedom

65 views4 pages

harlequingnat161

30 May 2018

School

Griffith University

Department

Economics & Econometrics

Course

1303AFE

Professor

n/a

For unlimited access to Class Notes, a Class+ subscription is required.

Economics for decision making Week 3 Lecture Notes

GDP: Measuring the Economy

GDP Defined

• Gross domestic product is:

o The market value of all final goods and services produced within a country in

a given time period

• Market alue….

o Uses market priced to value production (PxQ)

o GDP includes only those items that are traded in markets, i.e. goods and

services that have a market price

• …. All fial goods ad serices e.g. ice crea sold at a dessert shop

o intermediate good or service used to make the final good (e.g. sugar bought

by the shop to make the ice cream). Not counted in GDP

• … produced ithi a coutr...

• …i a gie tie period e. Quarterl, auall, etc.

• GDP is essentially value of total (aggregate) production

• One way to measure GDP or total production is by measuring total expenditure

• GDP (Y)= Total Production= Total Expenditure

Measuring GDP by measuring in total expenditure

• Components of total expenditure:

o Consumption (C): Expenditure by households on consumption of goods and

services

o Investment (I): Purchase of new capital goods (e.g. machinery) and additions

to inventories (stock) by businesses

o Government expenditure (G): Expenditure by government on goods and

services

o Net exports of goods and services (NX): value of exports (X) of goods and

serviced minus the value of imports (M) of goods and services (i.e. NX=(X-M))

• Consumption expenditure: C

• Investment: I

• Government expenditure on goods and services: G

• Net exports: NX= X-M

• GDP (Y)= total production= total expenditure= C+I+G+NX

• Total expenditure will also be equal to the total amount received by producers of

final goods and services (total income)

• Income

o Labour earns wages

o Capital earns interest

o Land earns rent

o Entrepreneurship earns profits

• Thus→ GDP (Y)= total production = total expenditure= total income

Note: largest component of the GDP for Australia is consumption

Investment is the most volatile component

find more resources at oneclass.com

Unlock document

This preview shows page 1 of the document.
Unlock all 4 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Economics for decision making week 3 lecture notes. All fi(cid:374)al goods a(cid:374)d ser(cid:448)ices (cid:894)e. g. ice crea(cid:373) sold at a dessert shop(cid:895) intermediate good or service used to make the final good (e. g. sugar bought by the shop to make the ice cream). Not counted in gdp: produced (cid:449)ithi(cid:374) a cou(cid:374)tr(cid:455), i(cid:374) a gi(cid:448)e(cid:374) ti(cid:373)e period (cid:894)e(cid:454). Quarterl(cid:455), a(cid:374)(cid:374)uall(cid:455), etc. (cid:895: gdp is essentially value of total (aggregate) production, one way to measure gdp or total production is by measuring total expenditure, gdp (y)= total production= total expenditure. Measuring gdp by measuring in total expenditure: components of total expenditure, consumption (c): expenditure by households on consumption of goods and services. Income: labour earns wages, capital earns interest, land earns rent, entrepreneurship earns profits, thus gdp (y)= total production = total expenditure= total income. Note: largest component of the gdp for australia is consumption.

Related Questions

Gross Domestic Product (GDP) only measures the value of marketed goods and services for a country during a given period of time.

Is the GDP measure underestimating or overestimating national production and total income in the economy? Why?

What are the limitations of the GDP in measuring total output and national welfare? What products (services) are excluded from the GDP computation?

ambergnu461

1. In the actual economy, households

a. spend all of their income.

b. divide their income among spending, taxes, and saving.

c. buy all goods and services produced in the economy.

d. Both (a) and (c) are correct.

2. Gross domestic product is defined as

a. the quantity of all final goods and services demanded within a country in a given period of time.

b. the quantity of all final goods and services supplied within a country in a given period of time.

c. the market value of all final goods and services produced within a country in a given period of time.

d. Both (a) and (b) are correct.

3. GDP adds together many different kinds of products into a single measure of the value of economic activity by using prices determined by

a. banks.

b. economists.

c. the government.

d. markets.

4. Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

a. caused measured GDP to fall.

b. not caused any change in measured GDP.

c. caused measured GDP to rise.

d. probably changed measured GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted.

5. A steel company sells some steel to a bicycle company for $150. The bicycle company uses steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute

a. $150 to GDP.

b. $250 to GDP.

c. between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle.

d. $400 to GDP.

6. The total sales of all firms in the economy for a year

a. equals GDP for the year.

b. is larger than GDP for the year.

c. is smaller than GDP for the year.

d. Any of the above is possible.

7. GDP is equal to

a. the market value of all final goods and services produced within a country in a given period of time.

b. Y.

c. C + I + G + NX.

d. All of the above are correct.

8. The consumption component of GDP includes spending on

a. durable goods and nondurable goods, but not spending on services.

b. durable goods and services, but not spending on nondurable goods.

c. nondurable goods and services, but not spending on durable goods.

d. durable goods, nondurable goods, and services.

periwinkletoad580

Topic 1: GDP and Its Limitations

The national income accounts measure productivity, spending, and income; but these accounts were not designed to measure economic welfare. GDP only measures the value of marketed goods and services for a country during a given period of time. Goods and services that are not sold in markets, such as food produced and consumed at home and household articles, are not included in GDP. Discuss aspects of economic welfare ignored in GDP measurement.

Discussion Checklist:

A.) What are the limitations of the GDP in measuring total output and national welfare?

B.) What products (goods and services) are excluded from the GDP computation?

C.) What are the impacts of the shortcomings of the GDP as a measure of the national product and national welfare?

ochrewolf599

1303AFE Lecture Notes - Lecture 3: Business Cycle, Potential Output, Political Freedom

Document Summary

Get access

Related Documents

ECON 1010 Chapter Notes - Chapter 20: Final Good, Capital Good, Time Series

ECON102 Chapter 20: C20-Measuring-GDP-and-Economic-Growth

EC140 Quiz: Chapter 20.docx

Related Questions