Chapter 28 - Measuring a nation’s income. In this lecture, we look for the answers to these questions: What is Gross Domestic Product (GDP)? How is GDP related to a nation’s total income and spending? What are the components of GDP? How is GDP corrected for inflation? Does GDP measure society’s well-being? | Measuring a Nation’s Income In this Lecture, we look for the answers to these questions: What is Gross Domestic Product (GDP)? How is GDP related to a nation’s total income and spending? What are the components of GDP? How is GDP corrected for inflation? Does GDP measure society’s well-being? Micro vs. Macro Microeconomics: The study of how individual households and firms make decisions, interact with one another in markets. Macroeconomics: The study of the economy as a whole. We begin our study of macroeconomics with the country’s total income and expenditure. This is the first strictly macro chapter of the textbook, so it’s worth spending a moment emphasizing the difference between microeconomics and macroeconomics. Examples of questions that microeconomics seeks to answer: How do consumers decide how much of each good to buy? How do firms decide how much output to produce and what price to charge? What determines the price and quantity of individual goods and | Measuring a Nation’s Income In this Lecture, we look for the answers to these questions: What is Gross Domestic Product (GDP)? How is GDP related to a nation’s total income and spending? What are the components of GDP? How is GDP corrected for inflation? Does GDP measure society’s well-being? Micro vs. Macro Microeconomics: The study of how individual households and firms make decisions, interact with one another in markets. Macroeconomics: The study of the economy as a whole. We begin our study of macroeconomics with the country’s total income and expenditure. This is the first strictly macro chapter of the textbook, so it’s worth spending a moment emphasizing the difference between microeconomics and macroeconomics. Examples of questions that microeconomics seeks to answer: How do consumers decide how much of each good to buy? How do firms decide how much output to produce and what price to charge? What determines the price and quantity of individual goods and services? How do taxes on specific goods and services affect the allocation of resources? Examples of questions that macroeconomics seeks to answer: How do consumers decide how to divide their income between spending and saving? What determines the total amount of employment and unemployment? What determines the overall level of prices and the rate of inflation? Why does the economy go through cycles, where things are great for a few years (like the late ’90s) and then lousy for a year or two (like 2001-2002)? When unemployment is high, what can the government do to help? Income and Expenditure Gross Domestic Product (GDP) measures total income of everyone in the economy. GDP also measures total expenditure on the economy’s output of g&s. For the economy as a whole, income equals expenditure because every dollar a buyer spends is a dollar of income for the seller. Notes: 1. The text in the first bullet point is NOT the formal textbook definition of GDP. The formal .
