Macroeconomics - Macroeconomics Study of how the economy as...

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Macroeconomics: Study of how the economy as a whole grows and changes over time-Guides government policies to fix problemsFor all Countries there are 3 Major Economic Goals:1.Promote Economic Growth2.Limit Unemployment3.Keep Prices Stable (Limit Inflations)1. Promoting Economic Growth-Most important measure of growth is GDP-GDP(Gross domestic product): Dollar value of all final goods and services produced within a countries boarders in one yearMeasures total income of everyone in the economyoValue = Price-GDP per Capita (per person)oGDP divided by the populationoIdentifies, on average, how many products each person makesWhat is NOT included in GDP?1.Intermediate Goods-Inside final goods (computer parts)2.Non-Production Transactions-Stocks, bonds, real estate3.Non-Market and Illegal Activities-Household production, drugsThere are TWO ways to Calculate GDP (Y)1.Spending Approach -Add up all the spending on final goods and services produced in a given yearGDP = C + I + G + NX2.Income Approach(GDP =wages + profits)  income-Add up all the income that resulted from selling all final goods and services provided in a given yearIncome = R + W + ir + PRLabour income  wages, salary, and fringe benefitsCapital income  Profits, rental payments, interest paymentsDepreciation: Loss of value of investment goodsFour entities that buy stuff:C  ConsumptionI  Investment (Businesses)G GovernmentNX  Net Exports (X-M)Factor Payments:R  RentW  Wagesir  InterestPR  Profit
Real vs Nominal GDPNominal:GDP measured in current prices, does not account for inflationReal:GDP expressed in constant, or unchanging dollars, adjusts for inflation(used commonly)

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