Notes

microeconomics: the study of how individual households and firms make decisions and how they interact with one another in markets
macroeconomics: the study of the economy as a whole. Its goal is to explain the economic changes that affect many households, firms, and markets at once
***circular-flow diagram
- markets for goods and services/markets for factors of production
- interaction between households and firms

GDP: a measure of the income and expenditures of an economy
- output is valued at market prices
- includes all items produced in the economy and legally sold in markets
- it record only the value of final goods, not intermediate goods
- tangible and/or intangible

Components of GDP
- all items produced in the economy and sold legally in markets
- what isn't counted?
--- items produced and consumed at home or produced and sold illicitly
- GDP (Y) = Consumption (C) + Investment (I) + Government Purchases (G) + Net Exports (NX)
- Consumption: spending by households on goods and services, except new housing
- Investment: spending on capital equipment, inventories, and structures, including new housing
- Government Purchases: spending on goods and services by local/state/federal gvmt, doesn't include transfer payments bc they aren't made in exchange for currently produced goods and services
- Net exports: exports minus imports

Real vs. Nominal GDP
- nominal GDP values the production of goods and services at current prices
- real GDP values the production of goods and services at constant prices
- an accurate view of the economy requires adjusting nominal to real GDP by using the GDP deflator
- GDP deflator: a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
--- 100x(nominal GDP)/(real GDP)
--- tells us what portion of the rise is attributed to rise in prices, not goods/services
- nominal GDP is converted to real GDP as follows:
<<some formula I didn't really get; check txtbk later>>>