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II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP fig 2. Three accounting identities a. The expenditures approach to GDP b. The income approach to GDP c. The leakages/injections identi B. Macroeconomic Instability: Unemployment and Inflation 1. Types of unemployment 2. Economic and noneconomic costs of unemployment 3. Full employment... the goal defined 4. Redistributive and output effects of inflation

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Page 1: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

II. Unit IIA. Measuring Domestic Output,

National Income, and the Price Level1. Important facts about the GDP figure2. Three accounting identities

a. The expenditures approachto GDP

b. The income approach to GDPc. The leakages/injections identity

B. Macroeconomic Instability:Unemployment and Inflation1. Types of unemployment2. Economic and noneconomic

costs of unemployment3. Full employment... the goal

defined4. Redistributive and output effects

of inflation

Page 2: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

EXPENDITURES(NO GOV. OR INT'L TRADE)

GDP -- C + ACTUAL I

Page 3: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

EXPENDITURES(NO GOV. OR INT'L TRADE)

GDP -- C + ACTUAL I

CONSUMPTION

. . . includes expenditures by householdson . . .

Page 4: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

CONSUMPTION

. . . includes expenditures by householdson . . .

CONSUMPTION occurs when outputgoes to households.

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 5: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

)

GDP -- C + ACTUAL I

INVESTMENT (GROSS PRIVATEDOMESTIC INVESTMENT) IG

1. All final purchases ofmachinery, equipment, and tools

by business enterprises

2.All construction (nongovernmental)3. Changes in inventories

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 6: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

INVESTMENT occurs when outputis retained by the business community(or sector).

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 7: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

INVESTMENT occurs when outputis retained by the business community(or sector).

Investment is the PHYSICAL creationof capital.

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 8: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

)

GDP -- C + ACTUAL I

CONSUMPTION occurs when outputgoes to households.

INVESTMENT occurs when outputis retained by the business community(or sector).

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 9: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

STUFF PRODUCED BY THE ECONOMYDURING THE YEAR

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 10: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

STUFF PRODUCED BY THE ECONOMYDURING THE YEAR

STUFF WHICH GOES TO HOUSEHOLDSDURING THE YEAR

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 11: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

)

GDP -- C + ACTUAL I

STUFF PRODUCED BY THE ECONOMYDURING THE YEAR

STUFF WHICH GOES TO HOUSEHOLDSDURING THE YEAR

STUFF RETAINED BY BUSINESS SECTORDURING THE YEAR

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 12: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

STUFF PRODUCED BY THE ECONOMYDURING THE YEAR

STUFF WHICH GOES TO HOUSEHOLDSDURING THE YEAR

STUFF RETAINED BY BUSINESS SECTORDURING THE YEAR

THE STUFF MUST GO SOMEWHERE..

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 13: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

STUFF PRODUCED BY THE ECONOMYDURING THE YEAR

STUFF WHICH GOES TO HOUSEHOLDSDURING THE YEAR

STUFF RETAINED BY BUSINESS SECTORDURING THE YEAR

THE STUFF MUST GO SOMEWHERE..

AND

THERE ARE ONLY TWO PLACESFOR IT TO GO!!!

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 14: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

)

GDP -- C + ACTUAL I

INVESTMENT (GROSS PRIVATEDOMESTIC INVESTMENT) IG

1. All final purchases ofmachinery, equipment, and tools

by business enterprises

2.All construction (nongovernmental)3. Changes in inventories

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 15: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

INVESTMENT occurs when outputis retained by the business community(or sector).

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 16: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a
Page 17: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

INVESTMENT (GROSS PRIVATEDOMESTIC INVESTMENT) IG

1. All final purchases ofmachinery, equipment, and tools

by business enterprises

2.All construction (nongovernmental)3. Changes in inventories

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 18: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a
Page 19: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a
Page 20: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

INVESTMENT occurs when outputis retained by the business community(or sector).

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 21: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a
Page 22: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a
Page 23: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a
Page 24: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

INVESTMENT (GROSS PRIVATEDOMESTIC INVESTMENT) IG

1. All final purchases ofmachinery, equipment, and tools

by business enterprises

2.All construction (nongovernmental)3. Changes in inventories

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 25: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

ASSUME:

STANDARDIZED BOXESOF FINAL GOODS

EACH PRICED AT $40

Page 26: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 27: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

$160

Page 28: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 29: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

2 BOXES$80

$160

Page 30: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 31: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

2 BOXES$80

$1602 BOXES

$80

Page 32: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 33: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

$160

Page 34: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 35: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

$160

6 BOXES$240

Page 36: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 37: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 38: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 39: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 40: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP -- C + ACTUAL I

---------------------------

INVESTMENT (GROSS PRIVATEDOMESTIC INVESTMENT) IG

1. All final purchases ofmachinery, equipment, and tools

by business enterprises

2.All construction (nongovernmental)3. Changes in inventories

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 41: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 42: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 43: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

$160

6 BOXES$240

-2 BOXES-$80

Page 44: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 45: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 46: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 47: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 48: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

$40 SKYSCRAPER

Page 49: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

$40 SKYSCRAPER

Page 50: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 51: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

$160

Page 52: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 53: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

$160

4 BOXES$160

Page 54: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

BUSINESS HOUSEHOLDS

BOX WAREHOUSE

Page 55: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

$160

4 BOXES$160

0 BOXES$0

Page 56: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a
Page 57: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

GDP C + ACTUAL I--4 BOXES

$160

WHY "ACTUAL"?

Page 58: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

Suppose producer wishes to increase theinventories he is carrying by 2 boxes

during the year.

Suppose he that he can sell4 boxes during the year.

He will therefore produce 6 boxes.

believes

EXPENDITURES(NO GOV. OR INT'L TRADE)

Page 59: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

Suppose producer wishes to increase theinventories he is carrying by 2 boxes

during the year.

He will therefore produce 6 boxes.

Suppose he sells only 2 boxes.actually

Suppose he that he can sell4 boxes during the year.

believes

Page 60: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

Suppose producer wishes to increase theinventories he is carrying by 2 boxes

during the year.

He will therefore produce 6 boxes.

ACTUAL I IS 4 BOXES.PLANNED I IS ONLY 2 BOXES.

Suppose he that he can sell4 boxes during the year.

believes

Suppose he sells only 2 boxes.actually

Page 61: II. Unit II A. Measuring Domestic Output, National Income, and the Price Level 1. Important facts about the GDP figure 2. Three accounting identities a

Suppose producer wishes to increase theinventories he is carrying by 2 boxes

during the year.

Suppose he believes that he can sell 4 boxesduring the year.

He will therefore produce 6 boxes.

believes

Suppose he actually sells only 2 boxes.actuallyACTUAL I IS 4 BOXES.

PLANNED I IS ONLY 2 BOXES.

HE "ACCIDENTALLY" BUYS

2 EXTRA

BOXES


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