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Chapter 23

# ECON 2 Chapter Notes - Chapter 23: Used Car, Seasonal Adjustment, Gdp Deflator

Department
Economics
Course Code
ECON 2
Professor
Keskinel, M.
Chapter
23

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Introduction
Microeconomics:
Study of how individual households and firms make decisions and how they
interact with one another in markets
i.
a.
Macroeconomics:
Study of the economy as a whole
i.
GDP, inflation/deflation, unemployment, retail sales, trade deficit
ii.
Explain the economics changes that affect many households, firms, and marke
simultaneously
iii.
b.
1.
(23.1) Economy's Income and Expenditure
GDP measures two things at once
Total income of everyone in the economy
i.
Total expenditure on the economy's output of goods and services
ii.
These two things are essentially the same
1)
iii.
a.
Money continuously flows from households to firms and then back to households
GDP measures this flow of money
i.
b.
Can compute GDP in two ways
By adding up the total expenditure by households
i.
Adding up the total income (wages, rent, and profit) paid by firms
ii.
c.
Regardless of whether a household, government, or firm buys a good or service,
transaction has a buyer and a seller
Expenditure and income are always the same
i.
d.
2.
(23.2) Measurement of GDP
Gross domestic product:
Market value of all final goods and services produced within a country in a give
period of time
i.
a.
(23.2A) "GDP is the Market Valueâ€¦"
Adds together many different kinds of product into a single measure of the
value of economic activity
1)
i.
Apple is twice as much as an orange, apple contributes twice as much to GDP
than orange
ii.
b.
3.
Chapter 23: Measuring a Nation's Income
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Apple is twice as much as an orange, apple contributes twice as much to GDP
than orange
ii.
(23.2B) "â€¦of Allâ€¦"
Tries to be comprehensive
i.
Includes all items produced in the economy and sold legally in markets
ii.
Measures apples and oranges, books and movies, haircuts and healthcare
iii.
Includes market value of the housing services provided by economy's stock of
housing
1)
2)
iv.
Excludes illicit items, most items produced and consumed at home
1)
v.
c.
(23.2C) "â€¦Finalâ€¦"
Includes only the value of final goods
1)
i.
Exception arises when an intermediate good is produced and is added to a firm
inventory of goods for use or sale at al later date
1)
ii.
d.
(23.2D) "â€¦Goods and Servicesâ€¦"
Includes both tangible and intangible services
i.
Buying a CD and going to a concert
ii.
e.
(23.2E) "â€¦Producedâ€¦"
Includes goods and services currently produced
i.
Does not include transactions involving items produced in the past
ii.
Used car value is not included in GDP
iii.
f.
(23.2F) "â€¦Within a Countryâ€¦"
Measures the value of production within the geographic confines of a country
i.
Items are included in a nation's GDP if they are produced domestically
1)
ii.
g.
(23.2G) "â€¦In a Given Period of Time"
Measures the value of production that takes place within a specific interval
i.
Measures economy's flow of income and expenditure during the time period
ii.
Presents quarterly GDP after modifying it via seasonal adjustment
1)
iii.
h.
Definition focuses on GDP as total expenditure in the economy
i.
Statistical discrepancy:
Difference between the two methods of calculations of GDP
i.
j.
(23.3) Components of GDP
To understand how the economy is using its scarce resources, economists study the
a.
4.