I. Review of the Definitions of Microeconomics and Macroeconomics

II. How are Income, Prouction, and Expenditure

III. The Measurement of Gross Domestic Product

  • A. Definition of gross domestic product (GDP): the market value of all final goods and services produced within a country in a given period of time.

    • B. "GDP Is the Market Value . . ."

    C. ". . . Of All . . ."

    D. ". . . Final . . ."

    E. ". . . Goods and Services . . ."

    F. ". . . Produced . . ."

    G. ". . . Within a Country . . ."

    H. ". . . in a Given Period of Time."

    　

    IV. The Components of GDP

    A. GDP (Y ) can be divided into four components: consumption (C ), investment (I ), government purchases (G ), and net exports (NX ).

    B. Definition of consumption:

    C. Definition of investment:

    D. Definition of government purchases:

    E. Definition of net exports:

    V. Real Versus Nominal GDP

    　

    　

    1. Two goods are being produced: hot dogs and hamburgers.

    　

    Year

    Price of

    Hot Dogs

    Quantity of

    Hot Dogs

    Price of Hamburgers

    Quantity of Hamburgers

    2008

    $1

    100

    $2

    50

    2009

    $2

    150

    $3

    100

    2010

    $3

    200

    $4

    150

    2. Definition of nominal GDP: the production of goods and services valued at current prices.

    Nominal GDP for 2008 = ($1 × 100) + ($2 × 50) = $200.

    Nominal GDP for 2009 = ($2 × 150) + ($3 × 100) = $600.

    Nominal GDP for 2010 = ($3 × 200) + ($4 × 150) = $1,200.

    3. Definition of real GDP: the production of goods and services valued at constant prices.

  • Let’s assume that the base year is 2008.

  • Real GDP for 2008 = ($1 × 100) + ($2 × 50) = $200.

  • Real GDP for 2009 = ($1 × 150) + ($2 × 100) = $350.

  • Real GDP for 2010 = ($1 × 200) + ($2 × 150) = $500.

    • 　

    VI. Is GDP a Good Measure of Economic Well-Being?

     

     

     I. The Consumer Price Index

    A. Definition of consumer price index (CPI): a measure of the overall cost of the goods and services bought by a typical consumer.

    B. How the Consumer Price Index Is Calculated

    1. Fix the basket.

    2. Find the prices.

    3. Compute the basket’s cost.

    4. Choose a base year and compute the index.

    5. Compute the inflation rate.

    a. Definition of inflation rate: the percentage change in the price index from the preceding period.

     Problems in Measuring the Cost of Living

    1. Substitution Bias

    2. Introduction of New Goods

    3. Unmeasured Quality Change

     

    I. Definition of financial system:

  • A. Financial Markets

  • The Bond Market

  • The Stock Market

    •

  • B. Financial Intermediaries

  •  Banks

  • Mutual Funds

    •

    II. Saving and Investment in the National Income Accounts

  • a. Definition of private saving:

  • b. Definition of public saving:

  • c. Definition of budget surplus:

  • d. Definition of budget deficit: a shortfall of tax revenue from government spending.

    •

    Inside the Meltdown

    Inside the Meltdown investigates the causes of the worst economic crisis in 70 years and how the government responded. The film chronicles the inside stories of the Bear Stearns deal, Lehman Brothers' collapse, the propping up of insurance giant AIG and the $700 billion bailout. It also examines what Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke didn't see and couldn't stop.

     

    Some Question You Should Think About: