Week 1
Video 1.1 What is included and what is not included in GDP?
Gross domestic product (GDP) = is the market value of all finished goods and services produced within
a country in a year. GDP only counts production (no old houses but only new houses)
Finished goods = one that will not be sold again as part of some other good.
Intermediate goods = goods that will combined become a finished good.
Capital goods = goods that are used to make other goods but are still considered finished goods.
(tractor)
Within a country, if the US imports a bottle of wine from France, the price of the bottle of wine adds up to
the GDP of France.
Video 1.2 Why real GDP matters, and nominal GDP not.
GDP can increase in 2 ways
- Inflation (nominal GDP).
- If we do produce more valuable goods and services, more goods and services or better goods
and services. (real GDP).
Real GDP = if the prices of goods and services hadn’t changed how much would have GDP increased
or decreased.
Real GDP met Capita = Real GDP / country population.
Real GDP per Capita, declines during recession. When Real GDP per capita dips, unemployment
rate spikes.
Video 1.3 Why real GDP is a good indicator for well-being
Real gdp per capita and the standard of living
Real GDP per capita is correlated with many of the other things we care about
- Life expectancy, positive correlation, higher gdp per capita = higher life expectancy
- Happiness, positive correlation
When we have more goods of services we can usually afford all other good things in life
GDP per capita problem, misses the distribution of income
- Income could be much more unequally distributed
, However growth in real GDP per capita usually does indicate growth in everyone’s
income.
How do we increase the standard of living, GDP per capita, grow an economy?
Video 1.4 splitting GDP
Two most common ways of splitting GDP
- National spending approach = consumption + investment + government purchases
+ exports – imports (net exports)
- Factor income approach
Government purchases is not the same as government spending.
Government spending does not add to GDP (tax rev. social security check, just a transfer, this check
does still have to be spent on goods and services only at that moment it is added to GDP).
Government purchases is spent directly on goods and services.
GDP = Employee compensation + rent + interest + profit
The use of this formula is also called (GDI)
GDP = GDI (in theory exactly equal)
GDP ~ GDI (since they are calculated in very different ways they usually give slightly different results)
Approach is depending on the question you are asking.
Week 2
Video 2.1 Business fluctuations
Business fluctuations = Fluctuations in real GDP around its long term trends or normal growth rate
Recessions = are significant wild spread declines in real income and employment
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