6 Microeconomics introduction-GDP

study of the economy as a whole its goal is to explain the economic changes that affect many households, firms, and markets at once.

1) why do prices rise rapidly in some time periods while they are more stable in others? 2) Why do production and employment expand in some years and contract in others? Macroeconomists are generally interested in fiscal and monetary policies that influence economic growth and national wellbeing.

GDP is the market value of all final goods and services produced with country in a given time period GDP adds together many different types of products using market prices to create a common unit of account for each good.

1)all items produced in the economy & sold legally in markets 2)only the value of final goods 'produced' 3)only includes goods currently produced

'within a country' items are included in a nation's GDP if they are produced domestically, regardless of the nationality of the producer 'in a given time period' GDP measures the value of production that takes place within a specific interval of time usually a year or a quarter (three months)

GDP can be divided into four main components: 1) consumption(C) 2) investment (I) 3) government purchases (G) 4) net exports (NX) Y=C+I+G+NX

Spending by households on goods (e.g., cards, appliances and food) and services (e.g., haircuts and medical care), except the purchase of new housing

The purchase of goods (e.g., capital equipment structures inventories and household purchases of new houses) that will be used in the future to produce other goods & services.

Spending on goods and services by local and central governments includes the salaries of government employees and government works does not includes transfer payments, as these payments do not reflect an economy's production.

The purchase of domestically produced goods by foreigners (exports) minus the domestic purchases of foreign goods (imports) exports are not included in C, I or G, so they must be added to the equation determining the value of goods produced domestically imports are included in C, I and G, so they must be subtracted from the equation determining the value of goods produced domestically

1) the economy is producing more goods and services, or 2) goods and services are being sold at higher prices To analyse a nation's economic performance overtime, it is useful to choose a base year as a point of reference for prices.

Nominal GDP uses current prices to value the economy's production of goods and services in that year. Changes in nominal GDP reflect both changes in the quantities of goods and services and their prices.

Real GDP uses constant (base-year) prices to place a value production of goods and services. change in real GDP reflect only changes in the quantity of goods and services.

is a measure of the price level calculated as the ratio of nominal GDP to real GDP times 1000 GDP Deflator= (Nominal GDP/Real GDP) x1000

the proportion of the rise in nominal GDP attributable to a rise in prices rather than a rise in quantities produced.

production, income and expenditure