EC140 Lecture Notes - January 8, Purchasing Power Parity, Potential Output
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EC140 Full Course Notes
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Goods and services valued at their market prices: final goods and services. Final good- item bought by final user during specified time period. Intermediate- goods used to produce other goods and services. Gdp excludes intermediate goods to avoid double/triple counting. Gdp measures production during specific time period (a year or: produced within a country, in given time period quarter of a year) Gdp and circular flow of expenditure and income: measures two things at once: Total expenditure on economy"s output of goods and services: for economy as whole, income = expenditure, because every dollar of expenditure by buyer is dollar of income for seller. Assume: no government collects taxes, purchases goods and services, no foreign sector trades goods and services, financial assets, currencies with country"s residents, no financial sector matches savers" supply of funds with borrowers" demand for loans. Leakage from flow of economic activity: savings, imports. Injection into flow of economic activity: government spending.