Week 2 Lecture

The market value of all final goods and services produced within a country in a given year

• GDP = C+I+G+(X-M)
• C= consumption (spending by households)
• I= Investment (spending by business + households purchases of new homes)
• G= Government Purchases (spending by local, state, and federal governments)
• (X-M)= Exports (X) of domestically produced goods and services to foreigner - imports (M) of foreign goods and services (X-M) is called "Net Exports" 

Production of goods and services valued at current prices

Production of goods and services valued at constant base-year prices

Year for which GDP deflator is set to an index of 100

GDP Deflator = Nominal GDP x 100 ÷ Real GDP

Estimated quarterly by the U.S. Dept of Commence, Bureau of Economic Analysis

• Factors:
• Population
• Productivity

increases at a rate of about 2% to 2.5% per year

increases at a rate of about 1% per year (increases in technology largely responsible for increases)

Line that tilts slightly upward indicating the 3% to 3.5% annual growth rate

• 1. Stretching natural resources (Thomas Robert Malthus)
• 2. Diluting the capital stock
• 3. Trying to force technological progress beyond capability

• 1. Increasing physical capital
• 2. Advancing human capital
• 3. Applying natural resources
• 4. Advancing technology

• Has been subject to business cycles for as long as the GDP has been measured
• Initiated by natural disasters or acts of war between nations
• Based on optimism or pessimism of consumers and investors 

• Included: measures are based on the civilian non-institutional population 16 yrs or older
• Excluded: ppl under 16, ppl confined to institutions such as nursing homes and prisons, ppl in active duty, ppl not seeking work or able to work

• Frictinal
• Structural
• Cyclical