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.
F. The GDP Deflator
1. Definition of GDP deflator: a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100.
2. Example Calculations
GDP Deflator for 2008 = ($200 / $200) × 100 = 100.
GDP Deflator for 2009 = ($600 / $350) × 100 = 171.
GDP Deflator for 2010 = ($1200 / $500) × 100 = 240.
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.
I. Unemployment can be divided into two categories.
A. The economy’s natural rate of unemployment refers to the amount of unemployment that the economy normally experiences.
B. Cyclical unemployment refers to the year-to-year fluctuations in unemployment around its natural rate.
II. Identifying Unemployment
A. How Is Unemployment Measured?
Definition of labor force:
Definition of unemployment rate:
Definition of labor-force participation rate:
B. Definition of the natural rate of unemployment:
C. Definition of cyclical unemployment:
Definition of discouraged workers:
Definition of frictional unemployment: unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills.
Definition of structural unemployment: unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.
Why Some Frictional Unemployment Is Inevitable