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ECN 204 (282)
Chapter 5

ECN Chapter 5.docx

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Department
Economics
Course
ECN 204
Professor
Christos Shiamptanis
Semester
Fall

Description
‘ECN Chapter 5  Microeconomics: The study of how households and firms make decisions and how they interact in markets.  Macroeconomics: The study of economy wide phenomena, including inflation, unemployment and economic growth. The economy’s income and expenditure  GDP: The market value of all goods and services produced within a country in a given period of time.  GDP measures two things at once: total income of everyone in the economy and total expenditure on the economy’s output of goods and services.  GDP can measure both total income and total expenditure because these two things are really the same.  For economy as a whole, income must equal expenditure. The measurement of gross domestic product (GDP)  GDP adds together many different kinds of products into a single measure of the value of economic activity.  There are some products that GDP excludes because measuring them is so difficult. Like produced and sold illegal drugs. It also excludes most items that are produced and consumed at home, and therefor never enter the market place.  GDP includes only the value of the final good because the value of intermediate goods is already included in the price of the final good.  If a product is used as inventory then GDP goes up.  GDP includes both tangible goods (food, clothing, cars) and intangible services (haircuts, housecleaning, dentist visits).  GDP includes goods and services currently being produced. It does not involve transactions involving items produced in the past. When General Motors produces and sells a new car, its included in the GDP. When a person sells a used car to another person, the value of the used car is not included in GDP  GDP measures the value of production that takes place within a specific interval of time. Usually that interval is a year or a quarter (three months). The Components of GDP  To underst
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