PPI: the ppi is prefered by economists

SPENDING APPROACH: method of calculationg the GDP that uses spending as a way to calculate production

Y=C+I+G+NX

y=GDP

c=capital

i=investment

g=gov. purchases

nx=net exports

BREAK DOWN FOR U.S.

67 % consumption: purchase of final goods and services by individuals

15% investment: purchases of final goods by firms plus purchases of newly produced residences by households

19% government purchases: purchases by federal state and local Gov. of new = 101% goods and services

-1% net exports (trade defecit) net exports: the value of exports minus the =100% value of imports

Investment: 1 new residences purchased by consumers residential investment: purchases of new houses and apartment buildings

2 final goods pruchased by businesses

a. business fixed investment: investment by firms in physical capital, such as factories and equipment.

b. inventory investment: a change in the stock of inventories from one date to another

hallberg says-- inventory inc... GDP inc...

Intermediate good: a good that undergoes further processing before it is sold to consumers

Final good: a new good that undergoes no further processing before it is sold to consumers

National income and product accounts: official government tabulation of the components of GDP and aggegrate income.

trade balance: the value of exports minus the value of imports

imports: the total value of the goods and services that people in one country buy from people in other countries

INCOME APPROCAH: method of calculating the GDP that uses income: the value of everything produced or purchased is paid out to someone

1 labor income: the sum of wages salaries and benefits paid to workers

+

2 capital income: the sum of profits, rental payments, and interest payments.

+

3 depreciation: the decrease in an assets value over time

+

4 indirect business taxes: taxes, such as sales taxes, that are levied on products + when they are sold.

5 net income to foreigners:

--

6 Net income to americans abroad

=

approximately the spending approash total

gross investment: the total amount of investment, including that which goes towards replacing worn out capital

net investment: gross investment minus depreciation

statistical discrepancy: the discrepancy between calculations of the GDP using the spending approach and the income approach due to unreported data or errors in data collection

national income: the sum of labor income and capital income

personal income: income paid directly to individuals. includes: transfer payments, wages, and capital gains

PRODUCTION APPROACH: looks at value added

Savings S= Y -C -G

S= I + NX

if you are exporting more than you import then you are laoning $ to froeigners (saving); if net exports are negative then you are borrowing $ form foreigners (disaving)--acquiring debt.

value added: the value of the firm's production minus the value of the good they started with.

national saving: aggregate income minus purchases minus Gov. purchases.

real gross domestic product: the measure of the value of all the goods and services newly produced with in a country during a given period of time, adjusted for inflation.

nominal GDP: gross domestic product with out consideration of inflation

GDP deflator: nominal GDP divided by real GDP; it measures the level of prices of goods and services included in the real GDP relative to a given base year

price level: the average level of prices in an economy

consumer price index (CPI): a price index equal to the current price of a fixed market basket of consumer goods and services in a base year.

chained weight price index: a price index using a changing basket of goods and services computed just as real GDP is computed

purchasing power parity exchange rate: an exchange rate such that prices of similar goods in different countries are the same when measured in the same currency

Problems with Unemplyment statistics:

1 work done at home is not included

2 undergroung markets

3 Externalitites

4 no reflection of the value of extra leisure

5 not a measure of quality of life

6 not consider income equal

7 no consiedration of 1 child survival rate

2 crime

3 war chances