Read the summary and the most important questions on Macroeconomic fourth candian edition | 9781319331559 | Paul Krugman, Robin Wells, Iris Au, Jack Parkinson

• 7 GDP and the CPI : tracking the Macroeconomy

• How to measure the aggregate price level ? 

  To measure the price level, economists calculate the cost of purchasing a market basket.   

• Describe the price index (CPI) and explain how it calculates the inflation rate.

  It is the most common measure of the overall price level.
  It is the ratio of the current cost of that market basket to the cost in the selected base year multiplied by 100.  
  
  How is it calculated?
  
   

• 7.1 The National Accounts

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• What it he meaning of national acccount?

  It is a system of accounts and balance sheets that provide a broad and integrated framework to describe an economy of a country.

• 7.1.1.3 Calculating GDP

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• 2. The expenditure approach GDP = C + I + G + X – IM

  Is adding up all expenditures on domestic final goods and services by consumers by 
  

  • consumer C
  • firm I 
  • Government  G
  • Net export  (x-Im)

• How to avoid double-counting while using the expenditure approach

  We can by counting only the value of sales to final buyers ( consumers, government, firms, foreign buyers)
  
  example 
  
   An auto company’s purchase of steel to make a car isn’t considered a part of final spending. Still, the company’s acquisition of new machinery for its factory is considered a part of final spending.

• 3. The income approach :Measuring GDP as factor income earned from firms in the economy

  This approach adds two sources of income
  

  1. factor income and
  2. nonfactor income 

  
  
  How to
  Non-income factor ( indirect taxes  & capitals depression) +
  factor income ( wage + interest+ rent+ dividends )

• 7.1.1.4 What GDP Tells us

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• 2.2  what are the various ways in which households are linked with other sectors of the economy?

  Households are linked with other sectors 
  

  • through sales factors of production to firms 
  • through purchase of G&S from firms 
  • through lending funds to firms in the financial market
  • linked with the government by paying taxes by lending to the government 
  • linked with the rest of the world through purchasing imports
  • and transactions with foreigners in financial markets    

• 3. Suppose you mistakenly believed that the total value added was 30,500, the sum of the sales price of a car and a car's worth of steel. What items would you be counted twice?

  The value of the steel counted twice.

• 7.2 Real GDP : A measure of aggregate output

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• Aggregate (sum/collecation) out put (real GDP )

  Is the total economy quantity of output of final G&S.

• 7.2.2 What real GDP doesn't Measure

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• How do we eliminate the effect of population size when comparing GDP across countries?

  A country with a larger population will have a higher GDP simply because more people are working.
  

  • But this can be eliminated by dividing GDP by the size of the population, 
  • which is equivalent to the average GDP per person. which is called GDP per capita