Bài giảng Macroeconomics - Chapter 11: Spending, Income, and GDP

Chapter 11: Spending, Income, and GDPExplain how economist define and measure an economy's outputApply the expenditure method for measuring GDP to analyze economic activityDefine and compute nominal GDP and real GDPDiscuss the relationships between GDP and economic well-beingMarket ValueAggregate measure of quantities producedMore expensive items receive a higher weightingWillingness to pay is an indication of benefit received from the goodGovernment goods and services are not sold in the marketThese goods have valueIncrease overall outputQuantities are knownPrices cannot be establishedGovernment production is valued at costOverstates GDP if there is waste and inefficiencySome Non-Market Goods IncludedFinal Goods and ServicesFinal goods and services are consumed by the ultimate userEnd products of production Included in GDPIntermediate goods and services are used up in the production of final goodsNot included in GDP to avoid double countingA barber's assistant earns $2 per haircut for providing services such as shampooing and sweeping upBarber charges $10 per haircutHaircut's contribution to GDP is $10Goods Can Be Final and IntermediateMilk can be sold as a final product or used as an intermediate goodGallons of milk in the storeGallons of milk sold to restaurantsCount only the final goodsA capital good is a long-lived good used in the production of other goods and servicesHouses, apartments, and motelsStoves in restaurants, cooking schoolsDelivery vehicles and taxisMoney is not a capital goodProduced in a Country in a Period of Time"Domestic" in GDP means the activity is measured within a country's bordersNationality of owners or company is not relevantValue must be produced in the year consideredSell a 20-year old house for $200,000Pay $12,000 commissionValue added is $12,000House was not produced in the period of time studiedCount income generated from the sale of used goodsExpenditure Method for Measuring GDPFour users of final goodsHouseholds ■ FirmsGovernment ■ ForeignersAll goods produced are purchased by one of these groups in a given yearAmount spent = market valueGDP can be measured two waysMarket valueTotal spending for final goods less value of importsConsumption ExpenditureConsumption expenditure is spending by households for goods and servicesConsumer durables are long-lived consumer goodsConsumer non-durable goods are shorter-lived goodsServices are the largest component of consumer spendingCarsFurnitureAppliancesClothingFoodBeddingEducationTaxi ridesHaircutsInvestmentInvestment is spending by firms on final goods and servicesBusiness fixed investment is purchases of new capital goodsResidential investment is construction of new homes and apartment buildingsInventory investment is the change in unsold goods to the company's inventoryThese goods are produced but not yet soldThis entry can be positive or negativePlantPropertyEquipmentEconomic Investment and Financial InvestmentFinancial investment includes purchases of stocks, bonds, and other financial assetsPurchase generally transfers ownership of a portion of the firm's existing capital stockDoes not correspond to any increase in physical capital or production capacity, in most casesNew stock issues can be an exceptionEconomic investment refers to the increase in the capital goods used to produce other goodsThis value is based on the purchase price of the capital goods, not on stock valueGovernment PurchasesGovernment purchases are final goods and services bought by federal, state, and local governmentsExcludes transfer paymentsTransfer payments are made by government but the government receives no current goods or servicesNo purchases of final goods and services involved in transfer paymentsSpending by recipients is included in GDPExcludes interest paid on government debtFighter jetsTeachingOffice suppliesSocial SecurityFood StampsNet ExportsNet exports equal exports minus importsExports are goods and services produced domestically and sold abroadExports reduce the amount available to the domestic economyImports are purchases in the US of goods and services produced abroadImports can be consumption, investment, or government spendingImports increase the amount available to the domestic economyGDP Expenditures EquationTerminologyExpenditure approach to measuring GDPY = C + I + G + NXYGross Domestic Product or outputCConsumption ExpenditureIInvestmentG Government PurchasesNXNet ExportsIncome Approach to GDPWhen a good is sold, its proceeds are distributed to workers or business ownersGDP = labor income + capital incomeLabor income is wages, salaries, benefits, and incomes of the self-employedAbout ⅔ of GDPCapital income pays for physical capital and intangiblesMeasured before taxesProfits for business ownersRent for landInterest for bond holdersRoyaltiesAdjusting for Price ChangesCompare GDP for different years to see how much output has changedGDP changes over time becausePrices change ANDQuantity of output changesTo see how much output has grown, use only the changes in quantitiesHold prices constantReal GDP and Nominal GDP Real GDP values output in the current year using the prices from the base yearThe base year is a reference year that changes infrequentlyReal GDP measures the physical volume of productionNominal GDP values output in the current year using prices from the current yearNominal GDP is the current dollar value of productionObservations on Real and Nominal GDPUsually, nominal and real GDP increase each yearNominal GDP can go up and real GDP go downFewer goods and services produced ANDPrices increase faster than output decreasedNominal GDP will be smaller than real GDP if the prices in the current year are less than in the base yearUsually true for years before the base yearReal GDP could rise and nominal GDP fall, but this is rarePrices are falling faster than output is increasingReal GDP and Economic Well-BeingReal GDP is a flawed measure of well-beingIt values only market transactionsOmits illegal transactions, volunteer work, and household productionMaximizing GDP will not necessarily maximize national well-beingWhether increases in output increase welfare is a case-by-case issueGDP Does Not Value LeisureAmount of leisure time has increased in the past 100 yearsLeisure produces no goods for marketGDP places a value of zero on all leisure timeOpportunity cost of an hour of leisure is your hourly wageOmission of the value of leisure time makes GDP seem smallerNonmarket Economic ActivitiesGDP omits services that are not traded in marketsHousehold productionVolunteer servicesValuing these services would be difficultNonmarket activities are important in poor countriesSelf-sufficient households and bartered goods and servicesEnvironmental QualitySuppose a factory is built in your townPeople are employed and output is producedProductive activity is included in GDPSuppose further that the factory creates pollutionYour city hires a company to restore the environment to its initial conditionClean-up activities are included in GDPGets environment back to its starting point, not betterResource DepletionNo adjustment is made for the decline in resource availability when mining or other harvesting is doneEnvironmental quality and resource depletion are difficult to valueThey have value and that value is omitted from GDPPoverty and Economic InequalityGDP does not capture the effects of income inequalityMost would prefer living in a relatively equal society to one with a few wealthy and many poorUS uses an absolute standard of povertyIn 2009, a family of four was poor if their income was less than $21,756Inequality matters and it is increasing in the USThe case of the beat-up carGDP as a Welfare MeasureGDP omits and undervalues some goods and servicesGDP per capita is positively associated with several measures of well-beingMaterial standard of living: more goods and servicesHealth and life expectancyResidents of industrialized countries fare better than residents of developing countries in a range of health measuresEducationLiteracy and school enrollment rates are higher in high-income countriesSpending, Income, and GDPGross Domestic ProductExpenditure MethodIncome MethodReal and Nominal ValuesGDP and Well-BeingProduction Method