Ch. 5 : MEASURING GDP AND ECONOMIC GROWTH. Define GDP Circular flow model Relationship between aggregate expenditure and aggregate income. Measurement of real GDP and the GDP deflator Real GDP as a measure of economic growth and the limitations of our measure. Gross Domestic Product .
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GDP: gross domestic product
GDP and the Circular Flow of Expenditure and Income
For any given sector, inflows=outflows
T-G=government lending (borrowing)
Rest of World
X-M=U.S. lending (borrowing) with rest of world
S + government budget surplus (deficit) = lending (borrowing) with rest of world
Two ways to measure GDP:
Y = C + I + G + (X-M)
How Investment Is Financed
I = S + (T-G) + (M-X)
Investment is financed from three sources:
Gross vs. Net Domestic Product
Depreciation (capital consumption)
Capital(t)=Capital(t-1) + gross investment-depreciation
=Capital(t-1) + net investment
Depreciation is included in:
Depreciation is removed from
Investment plays a central role in the economy.
The National Income and Product Accounts divide net national income into five categories
Two items must be added to net domestic income to get GDP
For your answers to the next several slides, give your estimates of GDP to the nearest dollar, do not include decimals, and do not include $ signs.
average growth rate _______
RGDP (using 2002 as base) _________
4. Repeat steps 1, 2, and 3 for each pair of adjacent years to link real GDP back to the base year’s prices.
Health and life expectancy
Political freedom and social justice
Exchange rate in comparing across countries.
If more people begin to hire someone to take care of home projects instead of doing it themselves, the growth rate in real GDP will _____ the growth rate in the standard of living
Suppose U.S. GDP per capita is higher than that in Japan. If people in the U.S. average less hours of work per week than people in Japan, the extra GDP per capita in the U.S. will be an ____ of how much better off people in the U.S are compared to those in Japan.
What does this say about actual versus PPP exchange rate?