Macroeconomic Goals

Three Main Goals

1. Stable Prices
2. Low Unemployment
3. High and Sustained Growth

Focus: High and Sustained Growth

• Growth of a country's real income is desired.
• Measured using Gross Domestic Product (GDP).

Understanding GDP

Definition

• GDP: Total market value of all final goods and services produced within a country's borders during a specific time period.
  • Excludes income from domestic companies operating abroad.
  • Includes income from foreign companies operating domestically.

Key Components

• Final Goods and Services: Only the value of goods and services purchased by the final consumer is counted.

  • Intermediate goods are excluded to avoid double counting.

• Total Market Value: The nominal value of final goods and services within the period.

Measuring GDP

Methods

1. Expenditure Approach: Focus for this semester.

   • Examines who buys the produced goods and services.
   • GDP is the sum of expenditures by four sectors:
     • Household/Consumer Sector: Accounts for approximately 70% of GDP.
     • Business Sector: Investments in capital goods.
     • Government Sector: Purchases for functioning and providing services.
     • Foreign Sector: Net exports (exports minus imports).

2. Income Approach: Not emphasized in this course.

GDP Equation

• GDP = C + I + G + X
  • C: Consumption by households
  • I: Investment by businesses
  • G: Government spending
  • X: Net exports (exports - imports)

Upcoming Topic

• Discussion on Real GDP in the next session.