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Econ 311 Jan 14.docx

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University of British Columbia
ECON 311
Ratna Shrestha

Page 1 of 3 ECON 311 Jan 14 Ch 19 What Macroeconmoices is all about? Key Macroeconomic Variables - Output and Income - The production of output generations income - To measure total output in dollars, we add up the values of the many different goods produced - This gives normal national income, called gross domestic product (GDP) - When we measure the dollar value of the goods produced in a given year with respect to some reference year (based-period prices), we get real national income. - ex: base year 2002, 50 dollars. GDP = 50 x5. Today’s price is 100. GDP = 100x 5=500  Real GDP—real gross domestic product—is the value of the total production of a nation from all the sources such as farms, factories, shops, and offices, measured in the prices of a single year or base year. Currently the base year is 2002.  Economic growth is the expansion of the economy’s production possibilities—an outward shift of Production Possibility Boundary (PPF).  We measure economic growth by the increase in real GDP. The increase in real GDP is solely caused by the expansion in output.  the real GDP growth. Inflation may cause the normal price to go up even the production hasn’t changed.  Whenever the country becomes more productive, there will be more economic growth which depends on education , technology and resource. Real GDP fluctuates around a rising trend:  the trend shows long-run economic growth  the short-run fluctuations show the business cycle-the fluctuations of real GDP around potential GDP.  Potential output or GDP is what the economy could produce if all resources (such as labour, capital, land, and entrepreneurial ability) were employed at their normal levels of utilization - often called full-employment output.  The output gap measures the difference between potential output Y* and actual output Y. Output Gap = Y - Y* When Y < Y* , there is a recessionary gap. When Y > Y*, there is an inflationary gap. Page 2 of 3 potential GDP increase over time. It is real GDP. What’s the reasons behind for increasing GDP? Resources, better technology (within sho
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