Chapter 7 (Text) - Valuing and Economy Flashcards
What is Macroeconomics?
Is the study of an economy on a broad scale, focusing on issues such as economic growth, unemployment, and inflation.
We talk about consumption, production, and prices in the aggregate, on a national level, and we loot at the effect of those aggregate forces on the whole economy.
How can Macroecon impact our daily lives?
Everyone tends to do better in times of steady economic growth, stable prices, and low unemployment. On the flip side, long periods of stagnation, inflation, and high unemployment can do great damage to families and communities.
How do we measure the status of a national economy?
by looking at expenditures or at income
What is the most commonly used metric for measuring the value of a national economy?
gross domestic product or GDP.
What is GDP?
Gross Domestic Product is the sum of the market values of all final goods and services produced within a country in a given period of time.
What are the FOUR important pieces within GDP?
- Market value
- Final goods and services
- Produced within a country
- In a given period of time
What is market value?
To compare economies, its impossible to account for EVERY product etc. So what they do is they came up with a COMMON UNIT, called “Market Value”, which is measured in dollars
What is “Final Goods and Services”
To avoid double-counting, we should ignore the price of intermediate goods and services—that is, goods and services used only to produce something else, like the fresh berries that were sold to the jam factory. Instead, we want to count only expenditures on final goods and services—those that get sold to the consumer. In this case, the only final good was the jar of jam you bought at the store. Its price was $3.40, so that is how much your purchase contributed to GDP.
“Produced within a country”
What if we want to measure the value of what is produced by all Canadian companies regardless of their location? In this case, we use a metric called gross national product (GNP).
GNP is the sum of the market values of all final goods and services produced and capital owned by the permanent residents of a country in a given period of time, no matter where in the world the production occurs. It is similar to GDP except that it
(1) includes world wide income earned by a country’s enterprises and permanent residents and
(2) excludes production by foreign nationals working domestically.
“In a Given Period of Time”
When you hear people talking about GDP, they’re usually referring to an annual figure. However, a year is a long time to wait for an update on how the economy is doing, so GDP is usually calculated on a quarterly basis—that is, four times a year.
Typically what we really want is an estimate of annual GDP, using the most recent quarterly information. We can’t just multiply this quarter’s GDP by four, however, because the economy seldom rolls along at the same pace all year.
For instance, December usually has more economic activity than other months because people are buying presents and travelling. Therefore, we need to adjust quarterly GDP estimates to account for these seasonal patterns. That’s why quarterly GDP is typically shown as an estimate that has been seasonally adjusted at an annual rate.
By taking account of predictable seasonal patterns, we can make a good guess at what annual GDP will be if the economy continues at its current pace.
What is the “stuff” within GDP?
Economist refer to this “stuff” as either output or production, and it includes both goods and services
1/3 of Canadian output is services, not goods
There’s no point list a thousand pages of goods and services, so we put a dollar value on it
What is the market value?
The market value of a good or service is the price at which it is bought and sold.
If we add up all the money people spend buying final goods and services—being careful to omit spending on intermediate goods so as not to double-count—the sum will be the market value of all output sold in the economy
In other words, we can measure total output by measuring total expenditure.
