ECON 2120 Lecture 2: Chapter 6

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8 Feb 2017
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Lecture 2
Chapter 6
Macroeconomics
Macroeconomics studies the factors that lead to the standard of living
Life expectancy is related to the standard of living of a certain area
o As life expectancy increases, there is a better standard of living
GDP per capita and standard of living are almost perfectly correlated in general if
you’re richer you can live longer and vice versa
When real GDP per capita is higher then
o the standard of living is higher,
o there is a longer life expectancy
o there are better health outcomes
o there are better environmental outcomes
o Cannot say there are fewer poor people on average the country is richer but that
is not evenly distributed
Gross Domestic Product (GDP): the market value of all final goods and services
that are newly produced in an economy during a period of time”
GDP measures how much a country produces in an economy
The income per capita tells the standard of living of a country
GDP is market value is measured in dollars
GDP tells about services as well as products ex: hotel, tax services, haircuts etc.
Final Goods we don’t count the intermediate goods that are used to produce a final
good; only consider the value of the final good when looking at GDP
o Ex: if you’re looking at a car, we only consider the value of the car not of all the
parts (windshield, steering wheel, etc.) that went into making the car
Intermediate goods goods used to produce a final good; if we consider the values of
these for GDP of a product we can double/triple the true value of the final good
Newly Produced within a country a good can be included in GDP if:
o Has to be produced did not exchange hands
o Was produced within the year
o Was produced within the country’s borders
Financial products are not included in the GDP because they are not something that is
produced
How to calculate the growth rate of GDP
o Defined as percentage change from one year to another
o Growth Rate of GDP = 100*((GDP of second year)-(GDP of first year))/GDP of
first year
o Example: Growth Rate of GDP in U.S. from 2013 to 2014 = 100*(17.3481-
16.66322)/16.6632= 4.11 %
Possible reasons for the GDP growth from 2013-2014
o Additional production increase in quantity
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