Macroeconomics Chapter 10

Front 1

Microeconomics

Back 1

The study of how individual households and firms make decisions, interact with one another in markets

Front 2

Macroeconomics

Back 2

The study of the economy as a whole.

We begin our study of macroeconomics with the country’s total income and expenditure.

Front 3

Gross Domestic Product (GDP)

Back 3

measures total income of everyone in the economy also measures total expenditure on the economy’s output of goods and services.

Front 4

total income equals total expenditure

Back 4

because every dollar a buyer spends is a dollar of income for the seller.

Front 5

Factors of production

Back 5

are inputs like labor, land, capital, and natural resources.

Front 6

Factor payments

Back 6

are payments to the factors of production. (e.g., wages, rent).

Front 7

Gross Domestic Product (GDP) Is…

Back 7

the market value of all final goods & services produced within a country in a given period of time.

Front 8

Goods are valued at their market prices, so:

Back 8

all goods measured in the same units (e.g., dollars in the U.S.)

Things that don’t have a market value are excluded (e.g. housework you do for yourself)

Front 9

Final goods:

Back 9

goods intended for the end user

Front 10

Intermediate goods:

Back 10

used as components or ingredients in the production of other goods

Front 11

GDP only includes.

Back 11

final goods
tangible goods (like DVDs, mountain bikes, beer, etc.)
intangible services (like dry cleaning, concerts, cell phone service, etc.).

currently produced goods, not goods produced in the past

Front 12

GDP time period

Back 12

usually a year or a quarter (3months)

Front 13

Four components of total spending:

Back 13

Consumption (C)
Investment (I)
Government Purchases (G)
Net Exports (NX)

Front 14

GDP equation

Back 14

Y = C + I + G + NX

Front 15

Consumption

Back 15

Consumption is total spending by households on goods and services.
For renters, consumption includes rent payments.

For homeowners, consumption includes the imputed rental value of the house, but not the purchase price or mortgage payments.

Front 16

Investment

Back 16

Investment is total spending on goods that will be used in the future to produce more goods.
capital equipment, structures, inventories.

not financial assets like stocks and bonds.

Front 17

Government Purchases

Back 17

Government purchases is all spending on the goods and services purchased by government at the federal, state, and local levels.
excludes transfer payments, such as Social Security or unemployment insurance benefits because transfer payments are not purchases of goods and services.

Front 18

Net Exports

Back 18

NX = exports – imports
Exports represent foreign spending on the economy’s goods and services

Imports are the portions of C, I, and G that are spent on goods and services produced abroad.

Front 19

Nominal GDP

Back 19

values output using current prices. It is not corrected for inflation.

Front 20

Real GDP

Back 20

values output using the prices of a base year. Real GDP is corrected for inflation.