Anda di halaman 1dari 4

# 2015, Study Session # 5, Reading # 17

## AGGREGATE OUTPUT, PRICE AND ECONOMIC GROWTH

Los 17.a
 GDP = MV (final goods & services) produced
during a period within the country.

Approach to GDP

 Expenditure Approach:
GDP = expenditure (cost) on goods &
services produced in the country within
a specific period.

Los 17.b

 Income Approach:
GDP = income earned by households
& businesses in the country during a
period.

Expenditure Approach

GDP = value created at each stage of
production & distribution during a
period.

Los 17.c

 Value-of-final output:
GDP = value of final goods & services
produced during the period.

GDP

 Nominal GDP:
GDP =  
Measure goods & services at their
current cost.

 Real GDP:
 =  
Measure current year output using
base prices.

##  GDP deflator: Price index which is

use to convert nominal GDP to real
GDP.

##  Per capita real GDP =

Los 17.d

 

 

Components of GDP

Consumption (C)

Investment (I)

## Net Exports (X-M)

Income

 National Income:
 NI = Income received by
factors of production used in
the production of final output.

 Personal Income:
PI = Pre-tax income received by
households.

##  Personal Disposable Income:

Personal income (1-tax rate).

Los 17.e

##  (G-T) = (S-I) (X-M)

where,
G-T = fiscal balance.
 Thus If;
G-T > 0
X-M < 0 (Trade deficit), or
S-I > 0 (Excess private savings).

Los 17.f

IS curve:
 (S-I) = (G-T) + (X-M)
 It shows the ve relationship at each level of real interest rate b/w
real interest rate and levels of aggregate income.

LM Curve:
 According to quantity theory of money:
MV = PY
where,
M = Nominal money supply
V = Velocity of money
P = Price level
Y = Real income/expenditure
M/P = Y (1/V)
 It shows the +ve relationship between real interest rate & level of
real income, for a given level of real Ms, at which real MD= real Ms.

##  Aggregate demand curve is combination of points where IS & LM

curves intersect each other for different levels of real Ms, keeping
nominal Ms Constant.

Los 17.g

## Aggregate Supply Curve:

 It shows the relationship b/w price level and quantity of real GDP
supplied, keeping all other factors constant.
 SRAS curve is upward sloping.
 VRAS curve is perfectly elastic.
 LRAS curve is perfectly inelastic (vertical).
 LRAS shows potential GDP.

Los 17.h

##  Movement: in price level causes

movement along the curve.








In household wealth.
Capacity utilization.
Fiscal & Monetary policy.
Currency exchange rate.
Global economic growth rates.

##  Movement: in price level cause

movement along the curve.

Los 17.i

Shifts in AS curve:
 Short-Run:
 In nominal wages or other input prices.
 Currency exchange rates.
 Factors affecting LRAS.
 Long-Run:
 In labor supply & quality of labor.
 In physical capital supply.
 Availability of natural resources.
 Level of technology.

Gaps

##  Recessionary Gap: real GDP <

potential GDP  input prices.

##  Inflationary Gap: real GDP > potential

GDP  input prices.

Stagflation:
 High unemployment and increasing inflation. (Or) weak economic growth +
high inflation (may be caused by sudden  in short-run AS).
  Fixed income investments.
  Investment in equities.
  Investment in commodities.

Los 17.j

Labor Supply

Human Capital

Technology

## Physical Capital Stock

Natural Resources

Los 17.j

##  Potential GDP = Agg. Hours worked labor

productivity (or)
growth in potential GDP = growth in labor-force +
growth in labor-productivity.
 Sustainable rate of economic growth
= f (rate of  in labor force, rate of  in labor
productivity).

Los 17.k

Production function:
 It shows the relationship between:
 Output & labor,
 Capital stock.
 Productivity
 Total factor productivity advances in
technology.

Los 17.L

##  Growth in potential GDP = Growth in technology +  (growth in

labor) +  (growth in capital)
where,
 = Labors % share of national income.
 = Capital % share of national income.
 Growth in per-capital potential GDP = growth in technology + 
(growth in capital-to-labor ratio)