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Chapter 23
Chapter 23
23
Economics
N. Gregory Mankiw
▪ Macroeconomics:
The study of the economy as a whole.
Households:
▪ own the factors of production,
sell/rent them to firms for income
▪ buy and consume goods & services
Firms Households
Firms:
▪ buy/hire factors of production,
use them to produce goods
and services
▪ sell goods & services
MEASURING A NATION’S INCOME 5
The Circular-Flow Diagram
Revenue (=GDP) Spending (=GDP)
Markets for
G&S Goods &
G&S
sold Services bought
Firms Households
▪ includes spending on
▪ capital equipment (e.g., machines, tools)
▪ structures (factories, office buildings, houses)
▪ inventories (goods produced but not yet sold)
Note: “Investment” does not
mean the purchase of financial
assets like stocks and bonds.
In each year,
▪ nominal GDP is measured using the (then)
current prices.
▪ real GDP is measured using constant prices from
the base year (2005 in this example).
MEASURING A NATION’S INCOME 26
EXAMPLE:
Nominal Real
year GDP GDP
2005 $6000 $6000
37.5% 20.0%
2006 $8250 $7200
30.9% 16.7%
2007 $10,800 $8400
Real GDP
(base year
2000)
Nominal
GDP
Indonesia
Japan
China
Life expectancy (years)
U.S.
Mexico Germany
Brazil
Pakistan
Russia
India
Bangladesh
Nigeria
Real
MEASURING A NATION’S INCOME GDP per capita 38 38
GDP and Literacy in 12 countries
China Russia U.S.
Germany Japan
Mexico
(% of population)
Brazil
Adult Literacy
Indonesia
Nigeria
India
Pakistan
Bangladesh
Real
MEASURING A NATION’S INCOME GDP per capita 39 39
GDP and Internet Usage in 12 countries
Japan
U.S.
(% of population)
Internet Usage
Germany
Brazil
Indonesia
Mexico
Pakista
Russia
n
China
Nigeria India
MEASURINGBangladesh Real
A NATION’S INCOME GDP per capita 40 40
CHAPTER SUMMARY