Lecture Notes: Macroeconomics and GDP

Introduction

Presented by Jacob Clifford.
Historical context provided to illustrate economic concepts.
- Example of George Washington and bloodletting (1799).
- Example of the stock market crash (October 1929).

Focus of Unit 2: Macroeconomics, the study of the overall economy.
Gross Domestic Product (GDP):
- Definition: The dollar value of all final goods and services produced within a country's borders in one year.
- Developed during the Great Depression as a measure of economic health.
- Analogy: GDP is like a vital sign, comparable to a heartbeat.

Measurement Aspects:
- Measured in dollars, not quantities (e.g., not in cars or chickens).
- Only counts final goods and services.
  - Example: Tomatoes sold to consumers count, but those sold to businesses do not (intermediate goods).
- Counts production within the country, irrespective of ownership.
- Measured annually to track economic growth and policy effectiveness.

Expenditures Approach:
- Focuses on purchases of goods and services.
- Key Entities:
  - Consumers (C)
  - Businesses (I)
  - Government (G)
  - Net Exports (X - M)
- Equation: GDP = C + I + G + (X - M)
Income Approach:
- Looks at income generated from purchases.
- Equation: National Income = Wages + Rents + Interest + Profits
- Highlights that spending by one party is income for another.
Value-Added Approach:
- Adds value at each production stage.
- Example with hats:
  - Cost of yarn: $3
  - Sale of hat: $10
  - Final GDP contribution: $10 (value of the final good).

Examples of complicated scenarios may arise (e.g., international sales), but focus on understanding the basic concepts of GDP.
What Does Not Count Towards GDP:
- Intermediate goods (used to produce final goods).
- Used goods (produced in previous years).
- Financial transactions (e.g., buying stocks).
- Transfer payments do not count towards GDP.

Important for understanding both the Expenditures and Income approaches to GDP.
Represents the flow of money in the economy.
Includes the financial sector, highlighting the role of savings and lending.
Key Components:
- Consumer Spending
- Business Spending (Investment)
- Government Spending

Economic analogy reflecting the importance of money supply.
Federal Reserve's failure to maintain money supply led to a 35% decrease, worsening the economic crisis.
Ben Bernanke's acknowledgment of the Fed's role in the Great Depression.

Encouraged to engage with quizzes and additional practice through a linked PDF resource.
Emphasis on understanding the circular flow model and GDP calculations.