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Econ 2010 Notes Test 1 (got 94% in the course)

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Louisiana State University
ECON 2010

Econ 2010 NotesChapter 7GDP Measuring Total Production and IncomeMacroeconomicsThe study of the economy as a whole including topics such as inflation unemployment and economic growthWhen news announcers politicians and commentators refer to the economy they are often addressing macroeconomic issuesMost economies do not experience constant performance but uneven cyclical growthWithin every economy certain industry sectors or regions may experience their own cyclesThus the economy is always given attentionExpansionA period of increasing economic activity marked by rising levels total production and total employmentRecessionThe period of declining economic activity where levels of total production and total employment decreaseoNote there is a specific condition whereby a recession is officialBusiness cycleAlternating periods of economic expansion and economic recessionEconomic growthoften refers to the ability of an economy to produce increasing quantities of goods and services as an aside often this term is used to describe the rate of growth for GDPEconomists suggest economic growth produces a better standard of living Why Because with increased output comes increased employment and wages allowing for greater access to goods and services Government will enjoy a larger tax base enabling greater spending on education infrastructure and social servicesMeasuring Total Production Gross Domestic ProductoGDP is the primary measure by which economists evaluate an economyGross domestic product GDPThe market value of all final goods and services produced in a country during a period of time typically one yearoIt is calculated by taking a summation of all output multiplied by the goods own priceGDP is measured using market values not quantitiesThe word value is important in the definition of GDPGDP calculations are taken using recognized standardsNational income accountinga set of rules and definitions for measuring economic activity in the aggregate economythat is in the economy as a wholeoNational income accounting is a way of measuring total or aggregate productionGDP includes only current productionoGDP includes only production that takes place during the indicated time periodGoods are classified primarily asoFinal good or serviceA good or service purchased by a final useroIntermediate good or serviceA good or service that is an input into another good or service such as a tire on a truckGDP calculations do not measure total transactions in the economyit counts final output but not intermediate goodsoCounting the sale of both final and intermediate goods would result in double counting of economic outputTwo ways to eliminate double countingoCalculate only final outputA firm would report how much it sold to consumers and how much it sold to producers intermediate goodsoFollow the value added approachValue added is the increase in value that a firm contributes to a product or serviceIt is calculated by subtracting intermediate goods the cost of materials that a firm uses to produce a good or service from the value of its salesMeasuring GDP by the ValueAdded Method
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