Core-019 Measuring Aggregate Output
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About Core-019 Measuring Aggregate Output
About the Teacher
Jay Moulton
Jay Moulton is a business veteran. In short:
- Corporate finance and turnaround expert in U.S. and Canada
- CEO or operator of numerous companies in many industries
- 30 years of actually applying business economics principles
- Successfully led and invested in several leveraged buyouts
- Director or advisor to 30+ different companies
- Experience in both for-profit and not-for-profit sectors
- Producer of 700 professional videos and several TV shows
- Author of six economics and business strategy books
- Graduate of Harvard Business School MBA program
- Graduate of The Royal Military College of Canada
- Professional electrical engineer
- Governor of the Harvard Club of British Columbia
Measuring Aggregate Output
MODULE 1
Macroeconomics uses GDP and GNP to measure aggregate output. In this chapter, we explore how this aggregate output is calculated in real and nominal terms, and the roles of capital stock, capital flow, saving and investment.
Calculating GDP
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Learning objectives for this chapter - How Income Flows
A country's GDP can be calculated by adding all incomes earned in the economy, or by adding all expenditures. GDP can also be calculated by adding together either final values of goods and services, or the value added at each stage of production.
The U.S. GDP is a very large number. In 2011, for example, the U.S. GDP figure was more than $14 trillion dollars. In 2016, U.S. GDP was estimated to be $18.6 trillion.
In calculating GDP, it is important to understand that every transaction has a buyer and a seller. That means that one person's expenditure is another person's income. Economists use two methods to calculate GDP.
Everything produced in a country is divided into consumption, investment, government spending, and net exports.
There are two ways we can calculate GDP. We can either take the final value of the good or the service, or we can add the value added at every stage of production.
Housing contributes to GDP in two ways. When a house is built, that house is included in investment spending. In the year after the house is built, consumption spending on housing services includes gross rents paid by renters and estimated rents.
GDP vs GNP
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In this lesson, you will learn to: Describe the concept of opportunity costs using the examples of guns and butter.
GDP provides a money value to final goods and services produced domestically. GDP is the total value of finished goods and services, produced by labor and property supplied by the citizens of a country. The economies of the US, Canada and Mexico are used to illustrate the difference.
GDP does not include the value of those goods and services that are not reported. For example, the production of illegal immigrants, who come from Mexico and produce goods and services in the U.S., is not included in the U.S. GDP measure.
It is important to let resources flow freely across borders. By doing so, we give producers access to lower cost resources that originate outside their country. Goods and services, that consumers value, can be produced at lower costs.
Capital Stock and Flow Variables
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In this lesson, you will learn to: Describe the differences between public goods and private goods
Capital and investment are used to illustrate the difference between stock and flow variables.
Economists use the terms “capital” and “physical capital” interchangeably. Capital goods are used to produce goods and services -- a farm tractor, a computer used by a graphic designer, an industrial robot on a production line. Capital is a stock variable since it is measured at a point in time.
Capital is a stock variable since it is measured at a point in time. Investments and depreciation are flow variables. They are measured over a period of time, such as a year or quarter.
We can use water in a sink or bathtub to illustrate stock and flow variables.
Investment is part of the GDP equation Y=C+I+G+NX. GDP equals consumer spending plus investment plus government purchases plus net exports. If investment increases, there is a direct and immediate increase in GDP and aggregate demand.
This assessment will test your knowledge of Public Goods.
Saving and Investment
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In this lesson, you will learn to: Describe the differences between public goods and private goods
This video explains how economists define investment, and why students are often confused by economists' definitions of investment and saving.
Economic students are frequently confused because economists use certain words that have technically specific meanings that are quite different than those used by the media and the general public. “Saving” and “investment” are two such words.
Let’s review how a firm raises funds to make an investment purchase.
We can clarify this relationship between saving and investment by considering some simple algebra.
This assessment will test your knowledge of Public Goods.
Nominal vs Real Quantities
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In this lesson, you will learn to: Describe the differences between public goods and private goods
In this video, we study the significance of nominal and real values, where nominal values are money values of variables like profits and GDP.
Key economic variables like prices, wages, profits and GDP are measured using current market values. These current market values are called "nominal variables." However, nominal variables need to be adjusted for changes in prices to effectively compare them at two different points in time.
Let's compare the box office revenues from two movies, Gone with the Wind and Avatar.
This assessment will test your knowledge of Public Goods.
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