ECON 352-Chapter 2 Notes

Chapter 2 Notes
The Measurement and Structure of National Economy
1) GDP: the market value of all measurable final goods and services produced domestically
○​ GDP today = $23T
○​ GDP per capita: over $60,000
●​ Distinction between nominal GDP & real GDP:
○​ Nominal GDP is always larger than real GDP because it doesn’t take into account
of inflation
○​ Common price or base price: changes every 10 years
○​ 2012: 100 CPI
○​ 2023: 155 CPI
○​ Today’s GDP = $23T
○​ Real GDP = (nominal GDP/CPI of today)*CPI of base year (100)
○​ Real GDP of 2023 = ($23T/155)*100
●​ 3 ways to measure:
1.​ Sum of spending by the following sectors:
●​ GDP = C + I + G + X - M
●​ C: households spending
●​ I: firms
●​ G: government
●​ X: export
●​ M: import (produced in other countries so subtract it for GDP)
2.​ Sum of value added by producers:
●​ Value added = value of final goods - value of intermediary goods
3.​ Sum of income:
●​ Labor income: over 70% of income
●​ Capital income: over 20% of income
●​ Indirect taxes: 10%
2) GNP
●​ Nominal GDP = current dollar GDP = dollar GDP
●​ Real GDP = GDP in terms of goods = GDP in constant dollar = GDP adjusted for
inflation
●​ Distinction between GNP & GDP:
○​ GNP is the market value of all measurable final goods & services produced by
citizens (national) outside of their own country
■​ GDP = GNP - NFP
●​ NFP: net factor payments = income paid to domestic factors by
foreigners - income paid to foreigners by domestic economy