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AGGREGATE OUTPUT, PRICES AND ECONOMIC GROWTH - Coggle Diagram

- - - - is the total market value of the goods and services produced in a country within a certain time period
      - under expenditure approach, GDP is calculated by summing amounts spent on goods and services produced during the period => this is termed value of final output method
      - under income approach, GDP is calculated by summing the amount earned by households and companies during the period, including wage income, interest income and business profits.
      - whole economy, total expenditure = total income
      - sum of value added method, gdp is calculated by summing the additions to value created at each stage of production and distribution
    - - inclueds only purchases of newly produced goods and services
      - transfer payments made by government (unemployment, retirement, welfare benefits) are not included
      - sale or resale of goods produced in previous periods is excluded
      - goods and services that will not be resold or used in the production of the other goods and service
      - goods and services provided by government are included in GDP even though they are not explicity (clear) priced in markets
      - also includes value of owner occupied housing (just as it includes the value of rental housing services)
      - the value of labor not sold (own home repair), products of production (environmental damega) is not included
    - - total value of all goods and services produced by economy, valued at current market prices
      - because nominal GDP is base on current price, inflation will increase nominal GDP
        even if the physical output of goods and services remains constant from one year to the next
      - Nominal GDPt for year t =
        ∑N/ i=1 (price of good i in year t) x (quantity of good i produced in year t)
    - - measure the output of economy using prices from a base year, removing the effect of changes in prices so that inflation isnt counted as economic growth
      - real GDP growth reflects only increases in total output, not simply increases in the money value of total output
      - Real GDPt for year t =
        ∑N/ i=1 (price of good i in year t - n (base year) ) x (quantity of good i produced in year t)
    - - is a price index that can be used to convert nominal GDP into real GDP, taking out the effects of changes in overall price level
      - GDP deflator for year t = nominal GDP in year t/ real GDP x 100
    - - = real GDP/ population and often used as a measure of economic well being of country's resident
  - - - measures the depreciation of physical capital from the production of goods and servicers over a period
      - amount that would have to be invested to maintain the productivity of physical capital from one period to next
    - - sum of income received by all factors of production that go into the creation of final output
      - net income = compensation of empoyees (wages and benefits)
        +corporate and government enterprise profits before taxes
        +interest income
        +unicorporated business net income (business's owners income)
        +rent
        +indirect business taxes - susidies (taxes and subsidies are included in final prices)
    - - measure the pretax income received by households and is one determinant (affect) of consumer purchasing power and consumption
      - differs from national income in that PI includeds all income that households receive, including government transfer payments such as unemployment or disability benefits
    - - is personal income after taxes
      - amount the households have available to either save or spend on goods and services. and an important economic indicator of ability of consumers to spend or save
  - - - G - T : is the fiscal balance, or different between government spending and tax recipts
      - X - M: trade balance
      - => T - G = (I - S) + (X - M)
- - - - function of disposable income. an increase in personal income or decrease in taxes will increase both consumption and saving.
      - Additional disposable income will be consumed or saved.
        
        the proportion of additional income spent on consumption is called marginal propensity to consume (MPC) - khuynh hướng tiêu dùng cận biên
        
        the proportion saved is the marginal propensity to save ( MPS)
        
        MPC + MPS = 100%
    - - function of expected profitability and cost of financing
        
        expected profitability depends on the overall level of economic output
        
        financing costs are reflected in real interest rates, which are approximated by nominal interest rates - expected inflation rate
    - - may be viewed as independent of economic activity to a degree, but tax revenue to the government.
      - Fiscal balance is a function of economic output
    - - function of domestic disposable incomes (which affect imports), foreign disposable incomes (which affect exports) and relative prices of goods in foreign and domestic markets
  - - - increase in consumers' wealth : value of households' wealth increases. proportion of income saved decreases and spending increases => C increases
      - Business expectations: when business are more optimistic about future sales, they tend to increase their Invesment => I increases
      - Consumer expectations of future income: when consumers expect higher future incomes, due to a belief in greater job stability or expectations of rising wage income => they save les for the future and increase spending now => C increases
      - High capacity utilization: when companies produce at a high percentage of their capacity, they tend to invest in more => I increases
      - Expansionary monetary policy: when rate of growth of money supply is increased, banks have more funds to lend, which puts downward pressure on interest rates.
        lower interest rates increase investment and increase consumers' spending => C and I crease
      - Expansionary fiscal policy: decreasing government budget surplus from decreasing taxes, increasing government expenditure or both (G increases), decrease in taxes increase disposable income and consumption ( C increases)
      - Exchange rates: decrease in the relative value of country's currency will increase exports and decrease imports. both of these affects tend to increase net exports (net X increase)
      - Global economic growth: GDP growth in foreign economies tends to increase the quantity of imports foreigners demand => increase domestic export demand (net X increases)
  - - - labor productivity : holding the wage constant, increase in labor productivity will decrease unit costs to producers => producers will increase output (SRAS shift to the right)
      - input prices: a decrease in nominal wages or the prices of other important productive input will decrease production costs and cause firm to increase production => increase SRAS.
        wages are the largest contributor to producer's cost and have greatest impact on SRAS
      - Expectations of future output prices: when businesses expect the price of their output to increase in the future, they will expand production => increase SRAS
      - taxes and government subsidies: either a decrease in business taxes or an increase in government subsidies for a product will decrease cost of production => firm will increase output => increase SRAS
      - exchange rate: appreciation of a country's currency in the foreign exchange market will decrease the cost of import => To extent that productive inputs are purchased from foreign countries, resulting decrease in production costs => output increases => increasing SRAS
  - - - Increase in the supply and quality of labor: an increase in labor force will increase full employment output and LRAS.
        an increasing in the skills of workforce, through training and education, will increase the productivity of labor force => increasing LRAS
      - increase in the supply of natural resources: increases in the available amounts of other important productive inputs will increase potential real GDP and LRAS
      - increase in the stock of physical capital: increase in economy's accumulated stock of capital equipment will increase potential output and LRAS
      - techonology: improvements in techonology increase labor productivity => increase potential real output and LRAS
- - - - labor force is the number of people over age of 16 who are either working or available for work but currently unemployed
      - affected by population growth, net immigration, labor force participation rate
      - important sources of economic growth
    - - education and skill level of a country's labor force can be adjust as important a determinant of economic putput
      - workers who are skilled and well educated (posses more human capital) are more productive and better able to take advantage of advances in technology => investment in human capital leads to greater economic growth
    - - high rate of investment increases a country's stock of physical capital. larger capital stock increases labor productivity and potential GDP
      - increased rate of investment in physical capital can increase economic growth
    - - improvements in technology increase productivity and potential GDP
      - rapid improvements in technologyy lead to greater rates of economic growth
    - - raw material inputs (oil, land) are necessary to produce economic output. These resources may be renewable (forest) or non renewable (coal)
        country with large amounts of productive natural resources can achieve greater rates of economic growth
  - - - the relationship of output size of labor force, the capital stock and productivity
      - economic output
        
        as a function of amount of labor and capital that are available and their productivity, which depends on the level of technology available
        
        Y = A x f (K, L)
        where Y = aggregate economic output
        L = size of labor force
        K = amount of capital available
        A = total factor productivity, closely related to technological advances
        
        can be stated on per worker basis:
        Y/L = A x f (K/L)
        where: Y/L = output per worker (labor productivity)
        K/L = physical capital per worker
        
        labor productivity can be increased by either improving technology or physical capital per worker
    - - WL and Wc are labor's percentage share of income and capital's percentage share of national income
      - growth in per capita potential GDP = growth in technology + Wc (growth in the capital to labor ratio)
        
        in developed contries, where capital per worker is relatively high, growth of technology will be primary source of growth in GDP per worker
        
        at high levels of capital per worker, an economy will experience dimishing marginal productivity for capital and must look to advances in technology for strong economic growth