Download Chapter 22

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Final Test – multiple choice
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„Microeconomics 6e” Prentice Hall Publishing
House, June 2004 ISBN: 0-13-191207-0
Czarny B. „Podstawy Ekonomii”
Begg D., „Economics”
http://www.ioz.pwr.wroc.pl/Pracownicy/Chodak/
http://windward.hawaii.edu/facstaff/briggsp/Macroeconomics/macrolectures.htm
www.wikipedia.org
When
judging whether the economy is
doing well or poorly, it is natural to look
at the total income that everyone in the
economy is earning.
To have this number make sense, it is
also best to look at income per person.
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For an economy as a whole, income must equal
expenditure because:
 Every
transaction has a buyer and a seller.
 Every dollar of spending by some buyer is a dollar
of income for some seller.
 Say’s
Law-Supply creates it’s own demand
 This process can be seen using a Circular Flow Diagram.
Revenue
Goods &
Services sold
Market for
Goods
and Services
Firms
Inputs for
production
Wages, rent,
and profit
Spending
Goods &
Services
bought
Households
Market for
Factors
of Production
Labor, land,
and capital
Income
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Gross domestic product (GDP) is a measure
of the income and expenditures of an
economy.
It is the total market value of all final
goods and services produced within a
country in a given period of time.
How much is the current GDP per capita?
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GDP (current U$)
GDP per capita (current U$)
GDP per capita (PPP-purchasing power parity)
GNI per capita (current U$)
GNI per capita (PPP)
GDP annual growth
Fertility rate
Life expectancy
Literacy rate
GDP is: GDP can be defined in three ways, all of which are
conceptually identical.
1.
First, it is equal to the total expenditures for all final
goods and services produced within the country in a
stipulated period of time (usually a 365-day year).
2.
Second, it is equal to the sum of the value added at
every stage of production (the intermediate stages) by
all the industries within a country, plus taxes less
subsidies on products, in the period.
3.
Third, it is equal to the sum of the income generated
by production in the country in the period—that is,
compensation of employees, taxes on production and
imports less subsidies, and gross operating surplus
(or profits).
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In economics final goods are goods that are
ultimately consumed rather than used in the
production of another good.
For example, a car sold to a consumer is a
final good;
The components such as tires sold to the car
manufacturer are not; they are intermediate
goods used to make the final good.
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Value added refers to the additional value of a
commodity over the cost of commodities used to
produce it from the previous stage of production.
It refers to the contribution of the factors of
production, i.e., land, labour, and capital goods, to
raising the value of a product and corresponds to
the incomes received by the owners of these
factors.
In national accounts such as the United Nations
System of National Accounts (UNSNA), gross value
added is obtained by deducting intermediate
consumption from gross output. Thus gross value
added is equal to net output.
GDP
includes all items produced in the economy and
sold legally in markets.
GDP excludes services that are produced and
consumed at home and that never enter the
marketplace.
Caring labour, the work that is normally produced
by women.
Because GDP does not count it, it diminishes its
importance.
GDP also excludes black market items, such as illegal
drugs.
 Gross
National Product (GNP)
 Net National Product (NNP)
 National Income
 Personal Income
 Disposable Personal Income
GDP (Y ) is the sum of the following:
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Consumption (C)
Investment (I)
Government Purchases (G)
Net Exports (NX)
Y = C + I + G + NX
Total (Billions
of Dollars)
Per Person (In
Dollars)
% of Total
$8,511
$31,522
100%
Consumption C 5,808
21,511
68%
Investment I
1,367
5,507
16%
Government G
1,487
5,507
18%
-559
-2%
GDP (Y)
Net Exports NX -151
Government Purchases
Investment
Net Exports
18%
16%
-2 %
Consumption
68 %
◦ We use real GDP to calculate the economic growth
rate.
◦ The economic growth rate is the percentage
change in the quantity of goods and services
produced from one year to the next.
◦ We measure economic growth so we can make:
 Economic welfare comparisons
 International welfare comparisons
 Business cycle forecasts
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Business Cycle Forecasts
◦ Real GDP is used to measure business cycle
fluctuations.
Nominal GDP values the
production of goods and services
at current prices.
 Real GDP values the production of
goods and services at constant
prices.
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Deflating
the GDP Balloon
◦Nominal GDP increases because production—real
GDP– increases.
Nominal GDP also increases because prices rise.
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Deflating the GDP Balloon
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We use the GDP Deflator to take the air
out of Nominal GDP.
Billions of
1992 Dollars
8,000
(Periods of falling real GDP)
7,000
6,000
5,000
4,000
3,000
1970
1975
1980
1985
1990
1995
2000