ECON-3020 Chapter Notes - Chapter 2: Black Market, Gdp Deflator, Fixed Capital
Chapter 2: The Data of Macroeconomics
● This chapter focuses on the three statistics that economists and policymakers use
most often
○ GDP tells us the nation’s total income and the total expenditure on its output
of goods and services
○ CPI measures the level of prices
○ Unemployment rate tells us the fraction of workers who are unemployed
2.1: Measuring the value of economic activity: GDP
● Computed every 3 months by the Bureau of Economic Analysis, part of the U.S.
Department of Commerce
● Two ways to view GDP
○ Total income of everyone in the economy
○ Total expenditure on the economy’s output of goods and services
○ These two things are really the same: income must equal expenditure. Every
dollar expenditure by a buyer must become a dollar of income to a seller
● National income accounting: system used to measure GDP and many related
statistics
● Income, expenditure, and the circular flow
○
○ Households sell labor to firms. Firms use labor to produce bread, which firms
in turn sell to the households. Households buy bread from firms. Firms use
some of the revenue from these sales to pay the wages of their workers, and
the remainder is the profit belonging to the owners of the firms.
○ GDP measures this flow. Can be computed with either loop (from firms to
households or households to firms)
● Rules for computing GDP
○ More precise definition of GDP=the market value of all final goods and
services produced within an economy in a given period of time
find more resources at oneclass.com
find more resources at oneclass.com
○ Used goods: GDP measures the value of currently produced goods and
services. Thus, the sale of used goods is not included as part of GDP.
○ Treatment of inventories: when a firm increases its inventory of goods, this
investment in inventory is counted as an expenditure by the firm owners
■ If the unsold product spoils, the firm has paid more in wages but has
not received any additional revenue, so profit is reduced by the
amount that wages have increased. Total expenditures in the
economy haven’t changed because no one buys the bread. Income
hasn’t changed either, although more is distributed as wages and less
as profit.
■ If the unsold product is put into inventory to be sold later, firms are
assumed to have purchased the product for the firm’s inventory and
the firm’s profit is not reduced by the additional wages it has paid.
GDP rises.
■ When the firm later sells the product out of inventory, it is like the sale
of a used good and we don’t count it. This is because there is
spending by bread consumers, but there is inventory disinvestment
by the firm.
○ Intermediate goods and value added
■ GDP only includes the value of final goods (hamburger is included in
GDP but meat is not)
■ Value of intermediate goods is already included as part of the market
price of the final goods in which they are used
■ The value added of a firm equals the value of the firm’s output less
the value of the intermediate goods that the firm purchases
● Sum of value added must equal value of all final goods and
services
○ Housing services and other imputations
■ Some goods and services are not sold in the marketplace and do not
have market prices. We must assign them imputed value.
■ Rent: expenditure by renter and income for landlord
■ Homes: To take account of the housing services enjoyed by
homeowners, GDP includes the rent that these homeowners pay
to themselves. The Department of Commerce estimates what the
market rent for a house would be if it were rented and includes that
imputed rent as part of GDP. The imputed rent is included both in the
homeowner’s expenditure and in the homeowner’s income.
find more resources at oneclass.com
find more resources at oneclass.com
