Topic 4: Different approaches to GDP

Size: px
Start display at page:

Download "Topic 4: Different approaches to GDP"

Transcription

1 Topic 4: Different approaches to GDP PRINCIPLES OF MACROECONOMICS Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University

2 Three different approaches to measure the GDP The production of an economy is measured by the GDP. There are three ways to calculate it: 1) Spending approach. 2) Value added approach. 3) Income approach.

3 1) Spending approach: we look at the spending patterns of households, firm and the government (we covered this before). Y = C + I + G + NX If a household buys a good or services to consume it, it is considered part of C. If a firm or the government or a firm buys machinery, equipments, software, etc, (including changes in inventories) it is considered investment, I. The payments of the local, state and federal government to professors, national guard, etc. is considered government expenditures, G The goods and services sold and bought abroad are considered NX. In this approach we care who buys the good or service and for what purpose.

4 2) Value added: we measured how much value was added in the different stages of production. The sum of the value added in each stage of production for all goods is equal to the GDP. For instance in the production of a can of coke, we measure how much value was added by the aluminum, how much by the bottling company, how much by the delivery company, and how much by the final seller. In this approach we do not care who buys the good and the purpose of the purchase.

5 3) Income approach. We add the income of workers, business owners and government. Because each sale represents a source of income for the seller the market value of production is equal to the income of the people that produced the good plus the taxes paid to the government. Also, in this approach we do not care who buys the good and the purpose of the purchase.

6 Example: Consider an economy composed of two sectors: farm and bakery. The farm sector produces corn. One part of the corn is sold directly to household and the other part is sold to the bakery. The bakery produces bread using the corn. The bakery sells the bread to households. Farm Sector Wages: $20 Taxes: $10 Corn sold to households: $90 Total revenue from corn selling:$200 Bakery Sector Wages: $50 Taxes: $25 Corn bought to the farm: $110 Total revenue from corn selling:$300

7 Lets obtain the GDP using the three different approaches. Spending approach: The value of households consumption is: $90 from buying corn and $300 from buying bread. In this simple example there is no investment, government spending or foreign sector. GDP = C = = ) Value added approach: The farm sector sold $200 worth of corn. They used rain and seeds and turn them into corn. Because in this easy example rain and seeds are free, the farm added $200 dollars to the production of corn. Farm s value added: $200 The bakery sector sold $300 worth of bread. In order to do this, they used corn worth $110 from the farm sector. Hence from the total $300 worth of bread $110 is due to the corn, the bakery only added $190 to the final value of the bread. Bakery s value added: $190 GDP= value added farm + value added bakery = = 390

8 3) Income approach. Wages paid by the farm: $20 Profit for the farmer after taxes: ( )=$170 Wages paid by the bakery: $50 Profit for the baker after taxes: ( ) =$115 Government revenue from taxes : = $35 GDP = = 390 All three approaches give you the same number

9 Real Life Numbers: In the US for 2010 the breakdown for each approach is the following: 1) Spending Approach: GDP = C + I + G + NX GDP = 71% + 12% + 21% - 4% (we talked about this in detailed in the previous topic) 2) Value Added: GPD = Agriculture and others (1.1%) + Mining (1.9%) + Utilities (1.9%) + Construction (3.4%) + Manufacturing (11.7%)+ Trade (11.4%) + Transportation (2.8%) + Information (4.6%) + Finance (21.1%) + Business (12.1%) + Education (8.7%) + Recreation (3.6%) + Others (2.3%) + Government (13.4%) 3) Income Approach: GDP = Wages + Taxes + Profits GDP = 54.9% + 6.9% % In the national accounts GDP from the income approach is referred as Gross Domestic Income (GDI) but it is the same number as GDP. Currently, there is a controversy about how wages and profits are divided in the US. Many economists have pointed out that profits as a percentage of GDP have increased over the last 30 years. While this seems to be true, it is hard to know why this is happening and whether this is a problem or not.

10 Wages and Profits as a % of GDP in the USA Wages as a % of GDP Profits as a % of GDP Wages (left y-axis) Profits (right y-axis)

11 Market for goods and services (firms sell, households buy) Firms taxes Government taxes Households Labor, capital, natural resources money Market for factor of production (firms and government buy labor, capital and natural resources, households sell)

12 Looking at previous graph you can see that: 1) The spending approach is based on what happens in the top part of the diagram. This approach looks only at the transactions that take place in the market for goods and services. 2) The value added approach takes place inside the box that says firms. That is, it takes place during the production of goods and services. 3) The income approach takes place in the bottom part of the diagram. In the market for factor of production. As you can see all the approaches give you the same answer, it is just a different way to look at the economy.

13 One final conclusion is important. When the final sale of a good or services takes place that represents a revenue from the seller. After the sale the seller distributes that money into payment to its suppliers, wages to his workers, taxes to the government and his own profit. The money from the sale does not disappear. Hence, a purchase is also a source of income. The value of the sale is measure in the spending approach of the GDP, the income from the sale is measure in the income approach of the GDP. Because those two are exactly the same, we arrive to a very important conclusion: Production = Income GDP = Production = Income The GDP is the income and production of a region during a period of time.

Topic 3: GDP Components and Foreign Sector

Topic 3: GDP Components and Foreign Sector Topic 3: GDP Components and Foreign Sector PRINCIPLES OF MACROECONOMICS Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University GDP components Now, we will talk about

More information

Measuring a Nation s s Income. Chapter 23. Measuring GDP

Measuring a Nation s s Income. Chapter 23. Measuring GDP Chapter 23. Measuring GDP Measuring a Nation s s Income Microeconomics Microeconomics is the study of how individual households and firms make decisions and how they interact with one another in markets.

More information

1st fundamental accounting identity

1st fundamental accounting identity 1st fundamental accounting identity With all variables being real, the fundamental national income accounting identity states that Y C + I + G + NX. ex-post supply of output ex-post demand for output C

More information

Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapters 10 and 11. Gross Domestic Product

Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapters 10 and 11. Gross Domestic Product Macroeconomics Topic 1: Define and calculate GDP. Understand the difference between real and nominal variables (e.g., GDP, wages, interest rates) and know how to construct a price index. Reference: Gregory

More information

Lecture 7: Measuring a Nation s Wealth. Rob Godby University of Wyoming

Lecture 7: Measuring a Nation s Wealth. Rob Godby University of Wyoming Lecture 7: Measuring a Nation s Wealth Rob Godby University of Wyoming Macroeconomics Macroeconomics is the study of the economy as a whole. Its goal is to explain the economic changes that affect many

More information

2 The Data of Macroeconomics

2 The Data of Macroeconomics 2 The Data of Macroeconomics 1 Why do we need data? Observations of real world Theories to explain real world - based on data Theories are tested against new data Level of detail and simplifications in

More information

Households Wages, profit, interest, rent = $750. Factor markets. Wages, profit, interest, rent = $750

Households Wages, profit, interest, rent = $750. Factor markets. Wages, profit, interest, rent = $750 KrugmanMacro_SM_Ch07.qxp 11/9/05 4:47 PM Page 87 Tracking the Macroeconomy 1. Below is a simplified circular-flow diagram for the economy of Micronia. a. What is the value of GDP in Micronia? b. What is

More information

ECON 202 MACROECONOMIC THEORY 5 April 2013 Dr. Yetkiner. Midterm Exam I--KEY. KingLand, year 2012

ECON 202 MACROECONOMIC THEORY 5 April 2013 Dr. Yetkiner. Midterm Exam I--KEY. KingLand, year 2012 ECON 202 MACROECONOMIC THEORY 5 April 2013 Dr. Yetkiner Midterm Exam I--KEY 1. (15 Points) Calculate the GDP of KingLand, a fictitious economy whose numbers are listed below. Do so using all three methods

More information

Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product

Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product Gross Domestic Product Why expenditure = income Two definitions: 1. Total expenditure on final goods and services 2. Total income earned by factors of production In In every transaction, the the buyer

More information

Gross Domestic Product (GDP)

Gross Domestic Product (GDP) Gross Domestic Product (GDP) ECON 101 Introductory Economics Columbia College ECON 101 (Columbia College) Gross Domestic Product (GDP) Week of June 27 1 / 28 Macroeconomics v.s. Microeconomics Topic Microeconomics

More information

GDP: Measuring Total Production and Income. Prepared by: CHAPTER19 CHAPTER. Fernando Quijano. 1 of of 33

GDP: Measuring Total Production and Income. Prepared by: CHAPTER19 CHAPTER. Fernando Quijano. 1 of of 33 1 of 33 2 of 33 CHAPTER19 CHAPTER 19 GDP: Measuring Total Production and Income In the more than 100 years that Ford Motor Company has been in business, its experiences have often mirrored those of the

More information

7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

More information

11.1 Estimating Gross Domestic Product (GDP) Objectives

11.1 Estimating Gross Domestic Product (GDP) Objectives 11.1 Estimating Gross Domestic Product (GDP) Objectives Describe what the gross domestic product measures. Learn two ways to calculate the gross domestic product, and explain why they are equivalent. 11.1

More information

GDP and National Accounts

GDP and National Accounts GDP and National Accounts National accounts show technically no recession yeeah! 1 of 18 Accounting (I) Some Accounting Definitions A stock variable is measured at one specific time, and represents a quantity

More information

Measuring a Nation s Income

Measuring a Nation s Income Measuring a Nation s Income Chapter 10 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,

More information

Chapter 8. GDP : Measuring Total Production and Income

Chapter 8. GDP : Measuring Total Production and Income Chapter 8. GDP : Measuring Total Production and Income Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Related Economic Terms Macroeconomics:

More information

MEASURING NATIONAL INCOME. Instructor: Ghislain Nono Gueye

MEASURING NATIONAL INCOME. Instructor: Ghislain Nono Gueye MEASURING NATIONAL INCOME Instructor: Ghislain Nono Gueye 1 Microeconomics vs Macroeconomics Microeconomics is concerned with the study of individual households, firms and markets. Macroeconomics, on the

More information

Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions:

Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions: In this chapter, look for the answers to these questions: What is Gross Domestic Product (GDP)? 5 How is GDP related to a nation s total income and spending? What are the components of GDP? How is GDP

More information

GDP PRACTICE PROBLEMS Coach Burnett AP Macroeconomics PROBLEM 1 SOLUTION 1 PROBLEM 2. A. Exports are greater than Imports

GDP PRACTICE PROBLEMS Coach Burnett AP Macroeconomics PROBLEM 1 SOLUTION 1 PROBLEM 2. A. Exports are greater than Imports GDP PRACTICE PROBLEMS Coach Burnett AP Macroeconomics 1 PROBLEM 1 The GNP of a country is greater than its GDP if: A. Exports are greater than Imports B. Imports are greater than Exports C. Imports are

More information

National Income. National Product. Example. National Income Equals National Product. Profit as a Residual. Accounting Identity

National Income. National Product. Example. National Income Equals National Product. Profit as a Residual. Accounting Identity National Product National product is the value of all the goods and services produced in the nation. National income is the total income created by producing the national product. 1 2 Equals National Product

More information

6. Use the following table to calculate net domestic product. NDP equals

6. Use the following table to calculate net domestic product. NDP equals Chapter 6 1. The reason economists include only the value of final goods and services when they calculate GDP is that intermediate goods A) do not create value added. B) do not add to economic welfare.

More information

GDP: Measuring Total Production and Income

GDP: Measuring Total Production and Income R. GLENN HUBBARD ANTHONY PATRICK O BRIEN Macroeconomics FOURTH EDITION CHAPTER 8 GDP: Measuring Total Production and Income Chapter Outline and Learning Objectives 8.1 Gross Domestic Product Measures Total

More information

6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average

6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average Name: Date: 1. Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: A) 10 pieces of fruit. B) $7. C)

More information

Production and Income

Production and Income CHAPTER 7 GDP: Measuring Total Production and Income Chapter Summary and Learning Objectives 7.1 Gross Domestic Product Measures Total Production (pages 211 218) Explain how total production is measured.

More information

National Income Accounting. Courtesy : www. carlprosper4nugs.yolasite.com

National Income Accounting. Courtesy : www. carlprosper4nugs.yolasite.com National Income Accounting Courtesy : www. Introduction to Economy of Ghana Measuring the Economy - National Income Accounting Structure of the Economy and Sectoral Outlook Economic History of Ghana: preindependence,

More information

Measurement. Chapter 2. Topics in Macroeconomics 2. Economics Division University of Southampton. February 2010

Measurement. Chapter 2. Topics in Macroeconomics 2. Economics Division University of Southampton. February 2010 Measurement Chapter 2 Topics in Macroeconomics 2 Economics Division University of Southampton February 2010 Chapter 2 1/45 Topics in Macroeconomics Gross Domestic Product Introduction Gross Domestic Product

More information

INTRODUCTION. Chapter 2. The Data of Macroeconomics. September 11, Chapter 2: The Data of Macroeconomics. ECON204. Fall 2012

INTRODUCTION. Chapter 2. The Data of Macroeconomics. September 11, Chapter 2: The Data of Macroeconomics. ECON204. Fall 2012 INTRODUCTION Chapter 2 The Data of Macroeconomics September 11, 2012 1 THERE ARE THREE KEY AGGREGATES 1. Measures of economic activity or income: GDP and GNP 2. Price level 3. Unemployment 2 1. MEASURES

More information

Measuring a Nation s Income

Measuring a Nation s Income Measuring a Nation s Income I. Review of the Definitions of Microeconomics and Macroeconomics A. Definition of microeconomics: the study of how households and firms make decisions and how they interact

More information

Chapter 23 Introduction to Macroeconomics & Measuring the Economy s Performance

Chapter 23 Introduction to Macroeconomics & Measuring the Economy s Performance PRINCIPLES OF MACROECONOMICS Chapter Introduction to Macroeconomics & Measuring the Economy s Performance Overview So far in the course, we dealt with the following issues: the laws of supply and demand

More information

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

More information

Production and Income

Production and Income CHAPTER 8 GDP: Measuring Total Production and Income Chapter Summary and Learning Objectives 8.1 Gross Domestic Product Measures Total Production (pages 243 250) Explain how total production is measured.

More information

Week 4 Tutorial Question Solutions (Ch2 & 3)

Week 4 Tutorial Question Solutions (Ch2 & 3) Chapter 2: Q1: Macroeconomics P.52 Numerical Problems #3 part (a) Q2: Macroeconomics P.52 Numerical Problems #5 Chapter 3: Q3: Macroeconomics P.101 Numerical Problems #5 Q4: Macroeconomics P102 Analytical

More information

Macroeconomics: GDP, GDP Deflator, CPI, & Inflation

Macroeconomics: GDP, GDP Deflator, CPI, & Inflation HOSP 2207 (Economics) Learning Centre Macroeconomics: GDP, GDP Deflator, CPI, & Inflation Macroeconomics is the big picture view of an economy. Microeconomics looks at the market for a specific good, like

More information

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH Learning Goals for this Chapter: To know what we mean by GDP and to use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

More information

Chapter 7. Practice Problems

Chapter 7. Practice Problems Chapter 7 Practice Problems 1. The national accounts keep track of everything except: A) the spending of consumers and the government. B) the sales of producers. C) business investment. D) exchange rates.

More information

Thinking Like an Economist. Copyright 2004 South-Western/Thomson Learning

Thinking Like an Economist. Copyright 2004 South-Western/Thomson Learning Thinking Like an Economist 2 Copyright 2004 South-Western/Thomson Learning THE ECONOMIST AS A SCIENTIST The economic way of thinking... Involves thinking analytically and objectively Makes use of the scientific

More information

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100)

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100) ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He Homework 1 Suggested Answer (Total points: 100) Understanding the growth rate and how to measure it Problem no. 1 on page 35. (10 points)

More information

The Data of Macroeconomics

The Data of Macroeconomics CHAPTER2 The Data of Macroeconomics Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN:... the meaning and measurement of the most important

More information

Chapter 8: GDP: Measuring Total Production and Income

Chapter 8: GDP: Measuring Total Production and Income Chapter 8: GDP: Measuring Total Production and Income Yulei Luo SEF of HKU January 25, 2016 Luo, Y. (SEF of HKU) ECON1220F/G January 25, 2016 1 / 20 Learning Objectives 1 Gross Domestic Product Measures

More information

MACROECONOMIC VARIABLES Measurement and definition. CHAPTER 2 The Data of Macroeconomics

MACROECONOMIC VARIABLES Measurement and definition. CHAPTER 2 The Data of Macroeconomics MACROECONOMIC VARIABLES Measurement and definition. 0 What this course is about: 1 2 WHAT IS THIS VARIABLES (GDP): part I WHAT DETERMINES THE BLUE LINE: part II WHAT DETERMINES THE RED LINE: part III HOW

More information

Macroeconomics, 6e (Abel et al.) Chapter 2 The Measurement and Structure of the National Economy. 2.1 National Income Accounting

Macroeconomics, 6e (Abel et al.) Chapter 2 The Measurement and Structure of the National Economy. 2.1 National Income Accounting Macroeconomics, 6e (Abel et al.) Chapter 2 The Measurement and Structure of the National Economy 2.1 National Income Accounting 4) The Bigdrill company drills for oil, which it sells for $200 million to

More information

Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015

Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015 Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015 Name: Solutions Fall 2015 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets in

More information

Exam 1 Review. Page 1

Exam 1 Review. Page 1 Exam 1 Review 1. When a firm sells a product out of inventory, GDP: A) increases. B) decreases. C) is not changed. D) increases or decreases, depending on the year the product was produced. 2. An economy's

More information

GDP AND THE STANDARD OF LIVING

GDP AND THE STANDARD OF LIVING GDP AND THE STANDARD OF LIVING C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 2 3 4 Define GDP and explain why the value of production, income,

More information

ECONOMICS (20 TH EDITION), McConnell, Brue, and Flynn. Chapter 25 Study Guide

ECONOMICS (20 TH EDITION), McConnell, Brue, and Flynn. Chapter 25 Study Guide ECONOMICS (20 TH EDITION), McConnell, Brue, and Flynn Chapter 25 Study Guide The subject of Chapter 25 is national income accounting. The first measure that you will learn about in the chapter is the gross

More information

The Data of Macroeconomics

The Data of Macroeconomics CHAPTER 2 The Data of Macroeconomics Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN:... the meaning and measurement of the most important

More information

Exports (X) but later (NX) Subtract imports at the end because accidentally added in when counting other things.

Exports (X) but later (NX) Subtract imports at the end because accidentally added in when counting other things. Measuring GDP 1. Expenditure Approach Sector Household Businesses Government Foreign Expenditure Consumption (C) Investment (I) Government Purchases (G) Exports (X) but later (NX) Subtract imports at the

More information

Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations

Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations Chapter 24 Measuring the Wealth of Nations 2014 by McGraw-Hill Education 1 What will you learn in this chapter? How to calculate gross domestic product (GDP). Why each component of GDP is important. What

More information

The Data of Macroeconomics. Measuring a Nation s Income. Measuring a Nation s Income

The Data of Macroeconomics. Measuring a Nation s Income. Measuring a Nation s Income Measuring a Nation s Income 10 The Data of Macroeconomics The rest of the quarter: Macroeconomics. Looking at GDP, inflation, unemployment Chapter 10: Measuring a Nation s Income Principle 8: A Country

More information

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

More information

Solutions manual Macroeconomics 8th Edition Gregory Mankiw

Solutions manual Macroeconomics 8th Edition Gregory Mankiw Solutions manual Macroeconomics 8th Edition Gregory Mankiw C H A P T E R 2 The Data of Macroeconomics Questions for Review 1. GDP measures the total income earned from the production of the new final goods

More information

ECON 3020 MACROECONOMICS: MEASUREMENT AND STRUCTURE OF THE NATIONAL ECONOMY

ECON 3020 MACROECONOMICS: MEASUREMENT AND STRUCTURE OF THE NATIONAL ECONOMY ECON 3020 MACROECONOMICS: MEASUREMENT AND STRUCTURE OF THE NATIONAL ECONOMY Karel Mertens CORNELL UNIVERSITY 1. Introduction to Macroeconomics This chapter the defines some of the main objects of interest

More information

Unit 4: Measuring GDP and Prices

Unit 4: Measuring GDP and Prices Unit 4: Measuring GDP and Prices ECO 120 Global Macroeconomics 1 1.1 Reading Reading Module 10 - pages 106-110 Module 11 1.2 Goals Goals Specific Goals: Understand how to measure a country s output. Learn

More information

Topic 1: Introduction to Macroeconomics and GDP definition

Topic 1: Introduction to Macroeconomics and GDP definition Topic 1: Introduction to Macroeconomics and GDP definition PRINCIPLES OF MACROECONOMICS Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University Macroeconomics Lets start

More information

National Income & Business Cycles

National Income & Business Cycles National Income & Business Cycles There are three main measures of macroeconomic performance: Ohio Wesleyan University Gross Domestic Product (GDP), GNP, and others Inflation Unemployment 2. Measuring

More information

18. Refer to the above diagram. A shortage of 160 units would be encountered if price was: A. $1.10, that is, $1.60 minus $.50.

18. Refer to the above diagram. A shortage of 160 units would be encountered if price was: A. $1.10, that is, $1.60 minus $.50. Exam Review 1. When economists say that people act rationally in their self interest, they mean that individuals: A. look for and pursue opportunities to increase their utility. B. generally disregard

More information

Measuring National Output and National Income

Measuring National Output and National Income Measuring National Output and National Income 6 C H A P T E R O U T L I N E Gross Domestic Product Final Goods and Services Exclusion of Used Goods and Paper Transactions Exclusion of Output Produced Abroad

More information

Chapter 2 Review Question Key

Chapter 2 Review Question Key Chapter 2 Review Question Key Questions for Review 1. GDP measures the total income earned from the production of the new final goods and services in the economy, and it measures the total expenditures

More information

Aggregate Demand & Aggregate Supply

Aggregate Demand & Aggregate Supply Aggregate Demand & Aggregate Supply (the basics) slope of the aggregate supply (AS) curve aggregate supply (AS) - The total quantity of goods and services that firms are willing to supply at varying price

More information

MACROECONOMICS. N. Gregory Mankiw. The Science of Macroeconomics 8/2/2011. In this chapter, you will learn:

MACROECONOMICS. N. Gregory Mankiw. The Science of Macroeconomics 8/2/2011. In this chapter, you will learn: 2 0 1 0 U P D A T E S E V E N T H E D I T I O N 8/2/2011 MACROECONOMICS N. Gregory Mankiw PowerPoint Slides by Ron Cronovich C H A P T E R 2 The Science of Macroeconomics In this chapter, you will learn:

More information

31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX.

31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX. GDP Review Questions 13. Gross Domestic Product measures the a. quantity of the goods and services produced in a given year, listed item by item, within a country. b. income of the business sector within

More information

CONCEPT OF MACROECONOMICS

CONCEPT OF MACROECONOMICS CONCEPT OF MACROECONOMICS Macroeconomics is the branch of economics that studies economic aggregates (grand totals):e.g. the overall level of prices, output and employment in the economy. If you want to

More information

Name: Class: Date: Multiple Choice Identify the letter of the choice that best completes the statement or answers the question.

Name: Class: Date: Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. Name: Class: Date: Principles of Macroeconomics Quiz, Chap. 11-15 q11-15 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. Use the table below

More information

Student Name: Date: Teacher Name: Heather Creamer. Score:

Student Name: Date: Teacher Name: Heather Creamer. Score: Economics EOC Quiz Answer Key Microeconomic Concepts - (SSEMI1) Flow Of Goods, (SSEMI2) Law Of Demand, (SSEMI3) Economic Behavior, (SSEMI4) Organization And Role Of Business Student Name: Teacher Name:

More information

Macroeconomics CHAPTER 7. Tracking the Macroeconomy

Macroeconomics CHAPTER 7. Tracking the Macroeconomy Macroeconomics CHAPTER 7 Tracking the Macroeconomy What you will learn in this chapter: How economists use aggregate measures to track the performance of the economy. What gross domestic product, or GDP,

More information

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING Chapter in a Nutshell Gross domestic product was introduced in the previous chapter as a basic measure of macroeconomic performance. This chapter identifies

More information

Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.

Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption. Exam 1 Review 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high

More information

Chapter 5: Production, Income and Employment. Production and Gross Domestic Product, GDP: A Definition

Chapter 5: Production, Income and Employment. Production and Gross Domestic Product, GDP: A Definition Chapter 5: Production, Income and Employment We will take our first look at production and employment, focusing on two key variables: Gross Domestic Product and Unemployment Rate The nation s Gross Domestic

More information

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

More information

Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions

Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9 Multiple Choice Questions 1. Net domestic product is usually preferred to GDP by economists because net national product A.

More information

National Income Accounting

National Income Accounting National Income Accounting National Income Accounting Chapter 6 In the 1930s it was impossible for macroeconomics to exist in the form we know it today because many aggregate concepts had not yet been

More information

Foundations of Macroeconomics Chapter 2 The Circular Flows

Foundations of Macroeconomics Chapter 2 The Circular Flows Foundations of Macroeconomics Chapter 2 The Circular Flows 2) In the circular flow model. a market A) requires a physical location for buyers and sellers to get together. B) is any arrangement that brings

More information

Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics

Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics Lecture 6 Economics 202 Principles Of Macroeconomics Measuring GDP Professor Yamin Ahmad Real GDP and the Price Level Economic Growth and Welfare Big Concepts Ways to Measure GDP Expenditure Approach Income

More information

Measuring Economic Performance. Chapter 2

Measuring Economic Performance. Chapter 2 Measuring Economic Performance Chapter 2 Outline Gross Domestic Product Measuring GDP Through Spending Measuring GDP Through Production Measuring GDP Through Income Saving and Investment Transactions with

More information

Chapter 11: Activity

Chapter 11: Activity Economics for Managers by Paul Farnham Chapter 11: Measuring Macroeconomic Activity 11.1 Measuring Gross Domestic Product (GDP) GDP: the market value of all currently yproduced final goods and services

More information

22. In the national accounts, a drawing down of inventories counts as a. consumption. b. depreciation. c. disinvestment. d. investment. e. saving.

22. In the national accounts, a drawing down of inventories counts as a. consumption. b. depreciation. c. disinvestment. d. investment. e. saving. CHAPTER 20 These are some practice questions for CHAPTER 20. Each question should have a single answer. But be careful. There may be errors in the answer key! 19. Total value added in an economy is equal

More information

Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems

Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems 1. The aggregate expenditure model focuses on the relationship between real spending and. A) short-run; real GDP B) short-run; inflation

More information

MACROECONOMICS. The Data of Macroeconomics. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich. Modified for EC 204 by Bob Murphy

MACROECONOMICS. The Data of Macroeconomics. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich. Modified for EC 204 by Bob Murphy 2 MACROECONOMICS N. Gregory Mankiw Modified for EC 204 by Bob Murphy PowerPoint Slides by Ron Cronovich 2013 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN: the meaning and measurement

More information

Review for the Midterm Exam.

Review for the Midterm Exam. Review for the Midterm Exam. 1. Chapter 1 The principles of decision making are: o People face tradeoffs. o The cost of any action is measured in terms of foregone opportunities. o Rational people make

More information

TOPIC 15. Exchange Rates. Thursday, April 19, 12

TOPIC 15. Exchange Rates. Thursday, April 19, 12 TOPIC 15 Exchange Rates BIG PICTURE How do we evaluate currency across countries? How is the exchange rate determined? What is the relationship of the foreign exchange market and the foreign trade market?

More information

Douglas, Spring 2008 February 21, 2008 PLEDGE: I have neither given nor received unauthorized help on this exam.

Douglas, Spring 2008 February 21, 2008 PLEDGE: I have neither given nor received unauthorized help on this exam. , Spring 2008 February 21, 2008 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Midterm 1 1. What will happen to the equilibrium price of hamburgers

More information

MEASURING GDP AND ECONOMIC GROWTH*

MEASURING GDP AND ECONOMIC GROWTH* Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Gross Domestic Product Topic: GDP 1) Gross domestic product is the total produced within a country in a given time period. A) market value of all final and

More information

ECO 2302 Principle of Macroeconomics TEST I. Name: R: ID:

ECO 2302 Principle of Macroeconomics TEST I. Name: R: ID: ECO 2302 Principle of Macroeconomics TEST I Ibrahim Ozayturk Name: R: ID: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The can change the quantity

More information

The U.S. Economy. Chapter 2. What We Consume CHAPTER CHECKLIST. What Goods and Services Are Produced? How Are Goods and Services Produced?

The U.S. Economy. Chapter 2. What We Consume CHAPTER CHECKLIST. What Goods and Services Are Produced? How Are Goods and Services Produced? 1 CHAPTER CHECKLIST The U.S. Economy Copyright 2002 Addison Wesley Chapter 2 1. Describe the patterns and changes in what goods and services are produced in the United States. 2. Describe the patterns

More information

17 GROSS DOMESTIC PRODUCT

17 GROSS DOMESTIC PRODUCT 17 GROSS DOMESTIC PRODUCT OVERVIEW 1. Microeconomics is the study of the individual parts of the economy. Macroeconomics is the study of the economy as a whole. 2. Income is earned by society through productive

More information

Chapter 11: Aggregate Expenditure and Output in the Short Run

Chapter 11: Aggregate Expenditure and Output in the Short Run Chapter 11: Aggregate Expenditure and Output in the Short Run Yulei Luo SEF of HKU February 22, 2012 Learning Objectives 1 Understand how macroeconomic equilibrium is determined in the aggregate expenditure

More information

National Income Accounting

National Income Accounting National Income Accounting introduction national income accounting -- the study of the methods of measuring the aggregate output and aggregate income of an economy taking the nation's economic pulse --

More information

13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100.

13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. 1. In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget surplus or

More information

GDP: Measuring Total Production and Income

GDP: Measuring Total Production and Income Chapter 7 (19) GDP: Measuring Total Production and Income Chapter Summary While microeconomics is the study of how households and firms make choices, how they interact in markets, and how the government

More information

Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added

Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added Chapter 20 The Measurement of National Income In this chapter you will learn to 1. Use the concept of value added to solve the problem of double counting when measuring national income. 2. Describe the

More information

Chapter 2. Measurement. Overview

Chapter 2. Measurement. Overview Chapter 2 Measurement Overview Chapter 2 explores the different measures of macroeconomic data ranging from Gross National Product to unemployment. Beginning with the National Income and Product Accounts

More information

Tracking the Macroeconomy

Tracking the Macroeconomy chapter 7(23) Tracking the Macroeconomy Chapter Objectives Students will learn in this chapter: How economists use aggregate measures to track the performance of the economy. What gross domestic product,

More information

Output and Expenditure in the Short Run

Output and Expenditure in the Short Run Chapter 11 (23) Output and Expenditure in the Short Run Chapter Summary Chapter 10 examined the determinants of long-run economic growth. In the short run, however, the economy experiences fluctuations

More information

Solutions to Week 3 Tutorial Questions (Ch2)

Solutions to Week 3 Tutorial Questions (Ch2) Chapter 2: Q1: Macroeconomics P.51 Review Questions #1 Q2: Macroeconomics P.51 Review Questions #5 Q3: Macroeconomics P.52 Numerical Problems #5 Q4: Macroeconomics P.52 Numerical Problems #6 Q5: Macroeconomics

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Practice Midterm 1 Fall 2013 ECO 3203 Intermediate Macroeconomics MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose nominal GDP increases

More information

Chapter 2: The Data of Macroeconomics

Chapter 2: The Data of Macroeconomics Gross Domestic Product: Expenditure and Income Chapter 2: The Data of Macroeconomics Two definitions: Total expenditure on domestically-produced final goods and services. Total income earned by domestically-locatedlocated

More information

Sample Term Paper 2. Increased Government Spending on Health Care: Investing In Sources of Long-Term Growth. bv BQL - 12pm Sahan

Sample Term Paper 2. Increased Government Spending on Health Care: Investing In Sources of Long-Term Growth. bv BQL - 12pm Sahan Sample Term Paper 2 Increased Government Spending on Health Care: Investing In Sources of Long-Term Growth bv BQL - 12pm Sahan U.S. Needs a New Prescription to Slow Health-Care Spending The Wall Street

More information

National Income Accounting

National Income Accounting Harvard Business School 9-797-075 Rev. March 2, 2001 National Income Accounting Macroeconomics is the study of national economies. When undertaking such a study, we are interested in issues such as the

More information

Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #1

Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #1 Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #1 1. Variables that a model tries to explain are called: A) endogenous. B) exogenous. C) market clearing. D) fixed. 2. A measure

More information