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.
GDP: measures the total income of everyone in the economy and the total
expenditure on the economy’s output of goods and services.
For an economy as a whole, income must equal expenditure.
Adollar spent by a buyer is income for a seller.
Gross domestic product: (Y) the market value of all final goods and services
produced within a country in a given period of time.
Market value changes with value of the goods
Rent (implied amount if not paid), exclude illicit goods, and things made at home
GDP from goods can change if relationship changes between buyer and seller
Additions to inventory add to GDP as “final” goods, but if it is used to make a
final good it is intermediary and counted later.
Produced! Not selling of old goods
Modify for seasonal changes.
• C – consumption
• I – investment
• G – government purchases
• NX – net exports
Consumption: spending by households on goods and services, with the exception of
purchases of new housing.
Investment: spending on capital equipment, inventories, and structures, includi