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16 Cards in this Set
- Front
- Back
Healthy Economy has...
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1. High Employment
2. High Incomes 3. Low Inflation 4. Many opportunities for people 5. Low levels of Pollution 6. Vacation Time |
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Measuring Total Production
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Increased employment and increased incomes require HIGH production
How do we measure total amt. produced in an economy? 1. Gross Domestic Things - GDT 2. Gross Domestic Weight - GDW 3. Gross Domestic Product |
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GDT Gross Domestic Things
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Sum of the quantity of goods/services
Limitations = What is considered a thing? Very different things make equal contributions? (Cars vs. |
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GDW Gross Domestic Weight
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Sum of the product of Quantity and Weight of goods/services produced
Limitations = How much does a haircut weigh? -- services can't be weighed |
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GDP Gross Domestic Product
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Sum of the product of Quantity and Price of goods/services produced
- Market value of the final goods and services produced in a country during a given period* |
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Defining GDP: Market Value
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Prices not stable (be careful about comparisons across time; comparing prices across countries)
Not everything produced goes through market |
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Defining GDP: Final Goods and Services
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Intermediate products not explicitly included but value of production that takes place during intermediate included in value of final product.
Ex. Car costs $20,000; tires, wheels, etc. have separate costs --> all included in final price with production value |
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Defining GDP: Produced
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Production creates income, so focus on things produced!
Selling an existing asset doesn't produce more income. |
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Defining GDP: In a country during a given period
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Creates 2 Boundaries:
1. Production within geographic boundary of country 2. Production within particular time period; particularly a year |
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How is GDP measured?
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INCOME APPROACH:
- Compensation of employees - Corporate profits - Proprietor's Income - Net interest - Rental income - Indirect business taxes |
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GDP(Y) Equation - Expenditure Method
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Y = C + I + G + NX
C = consumption I = investment G = government expenditures NX = Net Exports (Exports (X) - Imports (M) ) * Note - Social Security/federal payments - unemployment service check = NOT IN GDP |
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CONSUMPTION
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1. Goods: Durable (provide service for more than 1 yr.) and Non-durable
2. Services: transactions where no tangible product is traded * rent is part of this; living/owning own house is also part of this |
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INVESTMENT
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1. New factories and equipment
2. New housing 3. Spending on Intellectual Property Products 4. Net change in inventories (End of Year Inventory - Start of year inventory) *NOT purchase of stocks/bonds --> already existing so not part of investment or GDP |
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GOVERNMENT EXPENDITURES
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1. State & Local (bigger than federal) - schools, roads, etc.
2. Federal |
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Problems with using GDP as welfare measure
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1. Leisure --> GDP may be same but average work per day more in certain countries. (valued but not considered within GDP)
2. Bads & Goods --> Ex. pollution - externality (doesn't go through markets) by-product of production 3. Income Distribution --> may be very different per country but same GDP 4. Non-Market Activity --> service exchanged among family members? |
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Net Economic Welfare (Nordhaus & Tobin)
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Adjusted GDP by:
1. Adding leisure time 2. Correcting non-market activity 3. Adjusting Pollution Levels --> noticed BUSINESS CYCLES (keeping track since 1800s) - expansion, peak, contraction/recession, trough |