Economics Summary Chapter 20 Measuring a nation's income and Chapter 21 Measuring the cost of living
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Course
Economics
Institution
Avans Hogeschool (Avans)
Book
Economics
Summary of chapter 20 and 21 of the book Economics. Written by N. Gregory Mankiw and Mark P. Taylor, 3rd edition. Written for IBMS students of Avans or for the course Economics. ISBN 9781408093795.
Readings (Chapter 1-9, 14 of Mankiw and Taylor book) for Principles of Economics Midterm
Introduction to Microeconomics - Summary
Macroeconomic Revision Notes
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Economics summary Chapter 20 ‘Measuring a nation’s income’
Macroeconomics – the study of the economy as whole.
Microeconomics – the study of how individual households and firms make decisions and how they
interact with one another in markets.
Gross domestic product (GDP) – a measure of the income and expenditures of an economy.
-> ‘It is the total market value of all final goods and services produced within a country in a given
period of time.’
- it includes all items produced in the economy and sold legally in markets
GDP per capita – measures the national income per head.
GDP (Y) is divided into 4 components:
- Consumption (C)
- Investment (I)
- Government Purchases (G)
- Net Exports (NX) (-> export – import (X – M) )
Y = C + I + G + NX
Consumption - spending by households on goods and services, with the exception of purchases of
new housing.
Investment - spending on capital equipment, inventories, and structures, including new housing.
Government Purchases - spending on goods and services by local and central governments.
Net Exports – spending on domestically produced goods and services by foreigners (export) minus
spending on foreign goods by domestic residents (imports).
Transfer Payments – a payment for which no good or service is exchanged. (not part of GDP)
Nominal GDP - values the production of goods and services at current prices.
Real GDP - values the production of goods and services at constant prices.
GDP at constant prices – gross domestic product calculated using prices that existed at a particular
base year which takes into account changes in inflation over time.
GDP at current or market prices – gross domestic product calculated by multiplying the output of the
goods and services by the price of those goods and services in the reporting year.
GDP deflator - a measure of the price level calculated as the ratio of nominal GDP to real GDP x 100
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
X 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
- It tells us the rise in nominal GDP that is attributable to a rise in prices rather than a rise
in the quantities produced.
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
Converting Nominal GDP to Real GDP: Real GDP = 𝐺𝐷𝑃 𝑑𝑒𝑓𝑙𝑎𝑡𝑜𝑟 X 100
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