Title: The Aggregate Demand and Aggregate Supply Analysis
1The Aggregate Demand and Aggregate Supply Analysis
- Topic 1 Growth Domestic Product
- Topic 2 Price Level
- Topic 3 Aggregate Supply
- Topic 4 Aggregate Demand
2 The Aggregate Market
Price Level
Real GDP
3Topic 1 Gross Domestic Product
- What are counted toward GDP?
- Aggregation
- Real GPD vs. nominal GDP
- GDP per capita
4Gross Domestic Product
- Gross Domestic Product (GDP) is the sum of values
of all final goods and services produced in the
domestic economy and first time sold on organized
markets during a specific period of time, usually
a year. - the sum of values of all final goods and services
- produced in the domestic economy
- First time sold on organized markets
- during a specific period of time
- Final Goods and Services are those that are
purchased by their ultimate users.
5Q On 12/31/2002, the following events happened.
By definition of GDP, which were and which were
not counted toward 2002 US GDP and why?
- I bought an Eminems 2002 The Eminem show CD.
- Ans Counted
- In the New Year Eve, I got tickets to enjoy a
good time at the Quest Club. - Ans Counted
- Erica spent some money to buy the dress that
Christina Aguilera wore in the ceremony of 2000
Billboard Music Award. - Ans Not Counted.
- The dress was not produced and first time
sold in 2002
6Q On 12/31/2002, the following events happened.
By definition of GDP, which were and which were
not counted toward 2002 US GDP and why?
- Daniel bought a dozen of imported Australian
Pacific Oysters and had it as lunch at home - Ans Not counted.
- It was not produced in US
- A seafood restaurant bought a super big Boston
Lobster in order to serve it for Daniel as his
New Year Eve dinner. - Ans Not counted
- It is intermediate goods
7Q On 12/31/2002, the following events happened.
By definition of GDP, which were and which were
not counted toward 2002 US GDP and why?
- Before going to the Quest Club. I prepared a bowl
of 5 minute noodle soup for myself as my New Year
Eve dinner. - Ans Not counted.
- Housework is not sold in the organized
market - Godiva made too many chocolates and cannot sell
them all before its shops closed. - Ans Counted.
- Inventory produced in 2002 is counted
8A Simple Example of Aggregation
- Summing up the money values of all final goods
and services produced in US and sold on organized
markets in 2002, we have the 2002 US GDP. - E.g. 1 In 2000, an economy produced and sold 78
hamburgers, 3 jeans, and 7 shows at the prices 1,
30 and 6 respectively. What was its 2000 GDP? - Ans 78 x 1 3 x 2 7 x 6 126
- The answer is actually the nominal GDP
9Nominal GDP
- Nominal GDP is the GDP calculated by valuing all
outputs at current prices - Using nominal GDP to evaluate economic
performance is misleading - E.g. 2 In 2001, the economy produced and sold 70
hamburgers, 2 jeans, and 6 shows at prices 2, 40,
and 8 respectively. What was the 2001 nominal
GDP? - Ans 70 x 2 2 x 40 6 x 8 268
- Comparing to 2000, nominal GDP increased but
total production decreased!
10Real GDP
- Real GDP is calculated by valuing outputs of
different years at common prices. - Excluding the effect of price change, real GDP is
the right measure for the total production. - Real GDP Nominal GDP / P
- Can compare real GDP intertemporally or
internationally
11 Real GDP of the US
35,000
10,000
9,000
30,000
8,000
25,000
7,000
6,000
20,000
Dollars per Year
5,000
15,000
4,000
3,000
10,000
2,000
5,000
1,000
0
0
1955
1960
1965
1970
1975
1980
1985
1990
2000
1995
Year
122000 Real GDP by Economies (millions of dollars)
13Real GDP per Capita
- Real GDP per capita equals to real GDP divided by
population. - It measures standard of living.
14 Real GDP per Capita of the US
35,000
10,000
9,000
30,000
Per-capita real GDP (left scale)
8,000
25,000
7,000
6,000
20,000
Dollars per Year
5,000
15,000
4,000
3,000
10,000
2,000
5,000
1,000
0
0
1955
1960
1965
1970
1975
1980
1985
1990
2000
1995
Year
15Videos Life in developed, developing, and
under-developed countries
16GDP may not be perfect
- GDP only includes market activities
- GDP places no value on leisure
- GDP counts bads as well as goods
- Ecological costs are not netted out