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Lecture 12

ECON 1 Lecture Notes - Lecture 12: Dry Cleaning, Gdp DeflatorPremium


Department
Economics
Course Code
ECON 1
Professor
SARRAF, G
Lecture
12

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ECON 1 - Lecture 12 - Measuring a Nation Income
Economics
Microeconomics
Study of how households and firms
Make decisions
Interact in markets
Macroeconomics
Study of economy-wide phenomena
Including inflation, unemployment, and economic growth
Income and Expenditure
Gross Domestic Product (GDP)
Measures total income of everyone in the economy
Also measures total expenditure on the economy’s output of goods and services
Income equals expenditure
For the economy as a whole
Because every dollar a buyer spends is a dollar of income for the seller
The Circular-Flow Diagram
The Circular-Flow Diagram
Simple depiction of the macroeconomy
Illustrates GDP as spending, revenue, factor payments, and income
Preliminaries:
Factors of production are inputs like labor, land, capital, and natural resources
Factor payments are payments to the factors of production (e.g., wages, rent)
What This Diagram Omits
The government
Collects taxes, buys goods and services
The financial system
Matches savers’ supply of funds with borrowers’ demand for loans
The foreign sector
Trades goods and services, financial assets, and currencies with the country’s
residents
Gross Domestic Product (GDP)
The market value of all final goods & services produced within a country in a given
period of time
Good are valued at their market prices, so:
All goods measured in the same units (e.g., dollars in the U.S.)
Things that don’t have a market value are excluded, e.g., housework you do for
yourself
GDP includes all items produced in the economy and sold legally in markets
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