CHAPTER 22
Government purchases of goods and
services
NATIONAL ACCOUNTS Families - consumers spending
Firms - investment spending
Rest of the world- exports to other
countries
GDP is a measure of the
Value added: value
size of the economy - it
sales - c.
doesn’t take into account The GDP is the total value of all final goods
intermediate goods
changes in prices and services produced in the economy
during a given year
The reason why intermediate goods are
GROSS DOMESTIC excluded is to avoid double-counting, by only
taking into account the value added
PRODUCT
CALCULATION GDP
Aggregate spending:
Financial assets GDP = Consumer + Firm invest. + Gov.
like stocks and purchases + Exports - Imports
GDP AND bonds are always
excluded from GDP
CPI calculations
Real GDP: it’s the total value of final
goods and services produced in an
economy, calculated as if prices stayed
REAL GDP AND constant ( q2 * price1)
NOMINAL GDP Nominal GDP: a GDP number that hasn’t
CONSUMER AND PRODUCER PRICE been adjusted for changes in prices
INDEX GDP PER CAPITA
CPI: show how the cost of A country with a larger population will have
all purchases by a typical higher GDP simply bc there’s more people Price index: normalized mesure of the
urban family has changed working. To avoid this: GDP/ size overall price
over time population
PPI: measures changes in
the prices of goods
PRICE INDEX -
purchased by producers. INFLATION RATE Inflation rate: annual percent change in an
PPI often responds to
official price
inflationary or deflationary
pressures more quickly than
the CPI
Government purchases of goods and
services
NATIONAL ACCOUNTS Families - consumers spending
Firms - investment spending
Rest of the world- exports to other
countries
GDP is a measure of the
Value added: value
size of the economy - it
sales - c.
doesn’t take into account The GDP is the total value of all final goods
intermediate goods
changes in prices and services produced in the economy
during a given year
The reason why intermediate goods are
GROSS DOMESTIC excluded is to avoid double-counting, by only
taking into account the value added
PRODUCT
CALCULATION GDP
Aggregate spending:
Financial assets GDP = Consumer + Firm invest. + Gov.
like stocks and purchases + Exports - Imports
GDP AND bonds are always
excluded from GDP
CPI calculations
Real GDP: it’s the total value of final
goods and services produced in an
economy, calculated as if prices stayed
REAL GDP AND constant ( q2 * price1)
NOMINAL GDP Nominal GDP: a GDP number that hasn’t
CONSUMER AND PRODUCER PRICE been adjusted for changes in prices
INDEX GDP PER CAPITA
CPI: show how the cost of A country with a larger population will have
all purchases by a typical higher GDP simply bc there’s more people Price index: normalized mesure of the
urban family has changed working. To avoid this: GDP/ size overall price
over time population
PPI: measures changes in
the prices of goods
PRICE INDEX -
purchased by producers. INFLATION RATE Inflation rate: annual percent change in an
PPI often responds to
official price
inflationary or deflationary
pressures more quickly than
the CPI
