W13 : macroeconomics, GDP & inflation

macroeconomics:

the study of economywide phenomena, including inflation, unemployment and economic growth

microeconomics

the study of how households and firms make decisions and how they interact in markets

loss of welfare

deadweight loss

Gross domestic product (GDP)

considered to be the best measure of a society’s economic well-being ; The total income of everyone in the economy = the total expenditure on the economy’s output of goods and services

way to compute GDP

income & expendeture

GDP measurement

Market value of all final goods and services produced within a country in a given period of time → excludes hard to measure items: home production, illegal goods& services

final goods and services:

includes only the value of final goods because the value of intermediate goods is already included in the prices of the final goods

produced within a country

any geographically confined territory if it is possible to track the value produced within it, good doesn’t need to be consumed

given period of time

typical periods are 1 year or 1 quarter (3 months); at the end of the period the GDP calculation starts anew. “ at an annual rate”

analyzing GDP

Y = C + I + G + NX

Y – GDP

C – Consumption

I – Investment

G – Government purchases

NX – Net exports = Exports – Imports

nominal GDP

production of goods and services valued at current prices

Real GDP

production of goods and services valued at constant prices

there may be

situations where nominal GDP is rising (with prices), while the real GDP is falling→ Long term global real GDP trend is rising

GDP per capita

GDP divided by population, allows country comparison

GDP disadvantages

doesn't measure all goods and services, and disregards household labor technological advancement is not measured by GDP