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Understanding Macroeconomics: Measuring the Nation's Output and Income

Learn the fundamentals of macroeconomics, including gross domestic product (GDP), its limitations, and the measures of national income. Discover the different sectors of the economy and how GDP is calculated.

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Understanding Macroeconomics: Measuring the Nation's Output and Income

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  1. Tuesday, 6/09/15, Day 6 Do you know where your assigned textbooks are? *United States Government: Democracy in Action $89.00 *Economics: Principles and Practices $118.00 1-“Measuring the Nation’s Output and Income” 2- “Business Cycles and Fluctuations” 3- “Bring your “FINAL” study materials to class this Friday”

  2. Measuring the Nation’s Output and Income

  3. 1-What is “macroeconomics”? The branch of economics that deals with the economy as a whole, using aggregate measures of output; income; prices and employment.

  4. 2-What is gross domestic product? The most comprehensive measure of national output. Multiply all of the final goods and services produced in a 12 month period by their prices and then add them to get the total dollar value. All final goods and services that are sold in a year

  5. Gross Domestic Product The total dollar value of all finalgoods and services produced within a country’s borders in a given year.

  6. https://www.stlouisfed.org/education/economic-lowdown-video-series/episode-7-gross-domestic-producthttps://www.stlouisfed.org/education/economic-lowdown-video-series/episode-7-gross-domestic-product

  7. 3-What things may be excluded from GDP? In each case, give a brief explanation why. a-Intermediate products, or goods that are used to make other products that are counted in GDP: tires on a new car; paper used to make a newspaper [replacement tires are counted in GDP. Flour and sugar used at home to bake are counted; those used in a bakery to make a baked good for sale are not.

  8. b-Second hand sales [used goods…only original sale is counted in GDP. c-Nonmarket transactions: when you mow your lawn or do household repairs: only count when done for pay outside the home. d-Underground economy: drugs, gambling; flea markets; garage sales [difficult to trace]

  9. 4-What are the limitations of GDP? 1-tells us nothing about the composition of the output, or what is being produced 2-Impact of production on quality of life: environment, health 3-Some GDP is produced to control activities that give us little utility or satisfaction: money spent to fight crime

  10. 5-List the five measures of national income. a. Gross National Product: The dollar value of all final goods and services produced in one year with labor and property owned by a country’s residents. b. Net National Product: GNP less depreciation charges for wear and tear on capital equipment. c. National income: Income that is left after all taxes are subtracted from the Net National Product. d. Personal Income: Total amount of income going to the consumer sector before income taxes are paid. e. Disposable Personal Income: Personal income less income taxes.

  11. 6-What are the four sectors of the economy? Explain each one briefly. a. Consumer sector: Households b. Investment sector: Businesses c. Government sector: Local. state and federal d. Foreign sector: All consumers and producers outside the United States

  12. 7-What is the output-expenditure model? Shows how GDP is equal to the sum of aggregate demand by the consumer, investor, government and foreign sectors. GDP= C + I + G + [X-M] How GDP is calculated: GDP= Consumer purchases + Investments by businesses + Government purchases + [Exports – Imports]

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