PRINCIPLES OF MACROECONOMICS (MANKIW)
Download
Report
Transcript PRINCIPLES OF MACROECONOMICS (MANKIW)
CHAPTER 10:
National Output
Dr. Widad Soufi
Need for a measure of society’s well-being
GDP: market value of all final goods and services produced within a
country in a given period of time
Market value: market price
All: everything legally produced and sold in markets
Including rental value of owner-occupied housing
Illegal goods and services are excluded
Most home-produced items are excluded
Final: intermediate goods and services are excluded to avoid double counting
GDP = Σ added values at each production stage
If intermediate good not used as input but stored to be later sold or used, then
intermediate good is final good, added to inventory, and included in GDP
Produced: only value of current production is included
If used item is sold, then value not included in GDP, but transaction costs included
Country: everything produced within the boundaries of the country, regardless of
nationality
Period of time: usually the year
Circular Flow Diagram:
Household sector
Business sector
International sector
Public sector
Total production = Total Income = Total Expenditure
Total expenditure = C + I + G + NE
C: excludes households’ purchases of new housing
I: includes households’ purchases of new housing
G: excludes transfer payments
NE = Exp – Imp
Total income = National income
GNP = GDP + Net factor incomes from abroad
NNP = GNP – Depreciation
NI= NNP – Indirect business taxes + business
subsidies – Statistical discrepancy
PI = NI – Corporate profits – Corporate income
taxes
DPI = PI – Personal taxes
Nominal GDP: Evaluation of GDP at current
market prices
Real GDP: Evaluation of GDP at constant base year
prices
Example (Mankiw, page 213)
Real GDP data:
U.S.: see textbook
Morocco: see homework
Measure of economic well-being
Short term ups (expansions) and downs (recessions) in
the business cycle
Long term growth: on average
Yes, but GDP does not measure:
The value of leisure
Most of the activities that do not take place in a
market
Environmental quality
1.
2.
3.
4.
Explain why an economy’s income must equal its
expenditure.
A farmer sells wheat to a baker for $2. The baker
uses the wheat to make bread, which is sold for
$3. What is the total contribution of these
transactions to GDP?
Many years ago Peggy paid $500 to put together a
record collection. Today she sold her albums at a
garage sale for $100. How does this sale affect
current GDP?
Why do economists use real GDP rather than
nominal GDP to gauge economic well-being?
Solve the following problems: 5, 9
Mankiw, Gregory. Principles of
Macroeconomics. Third edition.