Ch.

11 notes 07/05/2007 12:53:00

Macroeconomics focuses on the overall performance of the economy- the
structure of econ. Activity in a region
• Econ. Track production, income and consumption in the nation’s
econ.
• The most commonly used measure of this is the gros product+
market value of production in a geographic region in a given period,
usually one year
-The gross domestic product (GDP) measures the market value of all final
goods and services produced in the us in 1 year.
• Measures production from individuals and businesses
• Includes all business located in the us even foreign business EX.
Mercedes plant in Tuscaloosa.
• Excludes US products produced in foreign countries EX: Coke plant
in mex.
National Income Accounts
• Tracking process that provides information about economic activity
• Keeps track of final goods and services= sold to the end, final use
o EX: tree cut down to make furni, only counts the furni sold in
the end, not all the sales in bet.
• This is done to avoid double counting so the sale of intermediate
goods and sevides is not counted (things that are used for
additional processing or that go into making something) EX sale of
the piece of lumber made from tree)
• GDP also ignores secondhand value – sale of used goods – this is
because the GDP measures production, not sales
• These products would have already been counted when they were
first produced and sold
Calculating GDP
• Natl. income accounts based on idea that one person’s spending is
another person’s income
• So GDP can be measured 2 ways- calculating total spending on US
production, or by total income earned from US population.
Expenditure Approach
• Adds up spending on all final goods in one year
• 4 components: consumption ©, Investment (I), government
purchases (G), and Net exports of goods minus imports (x-m)
 • Consumption: purchases of final goods -makes up 2/3 of all us
spending
o Includes durable goods- TV (takes a long time)
o And nondurable goods- soap/shampoo (will run out)
• Investment- use of money to produce new capital goods
o Most important part = physical capital- spending on things
like buildings, equipment, etc. that is used to produce goods
o Also includes inventory investment- stock of goods in process
or finished goods to be sold
o Doesn’t include buying existing buildings or used equipment
already been counted
• Gov. purchaces- federal, state, and local expenditures on goods and
services= building roads, public edu, ect.
o Gov. transfer payments don’t count – expenditures for which
the gov. receives no goods in exchange= SS, welfare, FEMA
aid
• Net Exports- total US exports minus total US imports
• GDP measures goods produced within national borders, so it
includes things produced domestically and sold abroad, but
excludes products made in other countries and sold in the US.
Expenditure Approach considers aggregate (total spending) =
C + I + G + (X-M) =GDP
Income Approach
• Adds up the income earned from production
• The aggregate income= the sum of all income earned by resource
suppliers
• To avoid double counting- calculate the value added at each stage
of production
o EX: each stage of making a table is paid for along the way so
calculate the value added at each stage (the amt paid for the
intermediate good)
• Add up the sum of all VALUE ADDED = 20 + 30+50+100=200$
same as final selling price)
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