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Econ 104 Lecture Notes.doc

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ECON 104
William Goffe

Econ 104Fall 2012August 31 2012Chapter 181 Gross Domestic Product Measures Total ProductionMeasuring Total Production Gross Domestic ProductoEconomists use gross domestic product GDP to measure total productionGDP is the market value of all final goods and services produced in a country during a period of time typically one yearoGDP is measured using market values not quantitiesThe word value is important in the definition of GDPoGDP includes only the market value of final goodsIn measuring GDP we include only the value of final goods and servicesA final good or service is one that is purchased by its final user and is not include in the production of any other good or serviceExamplehamburger purchased by a consumer or a computer purchased by a businessA intermediate good is a good or service that is an input into another good or serviceExamplethe tires Ford purchases to put on their trucksoGDP includes only current productionProduction income and the circularflow diagramoAfter producing an item all profits from said item are broken down into someones salary oThe circularflow diagram was introduced to show the interaction of firms and households in markets oTransfer payments are payments made by the government to households for which the government does not receive a new good or service in returnComponents of GDPoPersonal consumption expenditures or ConsumptionConsumption expenditures are made by households and are divided into expenditures on services such as medical care education and haircutsNondurable goods include food and clothingDurable goods include automobiles and furnitureoGross Private domestic investment or InvestmentInvestment spending by firms on new factories office buildings machinery and additions to inventories plus spending by households and firms on new housesoGovernment consumption and gross investment or government purchasesGovernment purchases are spending by federal state and local governments on goods and services such as teachers salaries highways and aircraft carriersoNet exports of goods and services or net exportsNet exports are equal to exports minus imports Export goods are goods and services produced in the united states and purchased by foreign firms households and governmentsImports are goods ad services produced in foreign countries and purchased by us firms households and governmentsAn equation for GDP and some actual valuesoYCIGNXYGDPCconsumptionIinvestmentsGgovernment purchasesNXnet exportsSeptember 17 2012Consumer price index CPIFinally compare the baskets value to what it was in 198284 base periodoCPI 72012market basket value 72012Consumer price index CPI and deflatingMovie with the most revenueoAvatar6011 M in revenue 2010oTitanic6008 M in revenue 1998Nominal valuesoCPI315 from 9810In real terms most revenueoTitanic Deflating convert between any two yearsHow to put numbers to thisNominal values
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