macro review sheet

# macro review sheet - Microeconomics- think small,...

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Microeconomics - think small, interaction of consumers and producers, decisions on prices, labor,… for a business Macroeconomics - big, the whole country, unemployment rates, production, GDP, economy as a whole Business cycle - the normal up and down cycle that just happens in the economy Expansion - production and employment increase- a good thing >the up and downs of business cycle Recession - unemployment rises, production falls- not good Inflation rate- a percentage change in price level based on price index Price Index - 1. Pick a base year- any year (say 1982- when I was born- important year) 2. Pick a bunch of goods that represent proportionally the average consumer’s purchases (housing, food, clothes, taxes, etc…) 3. Find the cost to buy them all (say \$500) 4. Pick another year (say 2000)-take those same exact goods and see what they cost in 2000 (say \$750) 5. Divide the 750 by the 500 (1.5) 6. Multiply by 100- just because- (150) This is our price index for 2000 with base year 1982, so, prices were, on average, 50% higher in 2000 than in 1982 (don’t know if that’s true or not!) So, if we want to keep 1982 as the base year, and see how much prices have gone up from 2000 to 2006 ( we find the price for that same bunch of goods in 2006 –say \$1,000- and divide by the base year (2) *100= 200. So, to measure inflation from 2000 to 2006, we take the difference over the original ((200-150)/150=.33 or 33%) so inflation is 33% over the last 6 years. (Not true! This kind of thing happened in the 70’s though- if we had 33% inflation in 6 years that would be a problem) GDP -sum of the market value of all final goods and services produced in an economy in a year –This includes spending on stuff by your average consumer (C), investment by business in future projects (I) – (this is effected by interest rates because businesses generally borrow the money that they use to invest- this will come in handy to remember in a minute), Government spending (G) on stuff- airplanes, bombs… (but NOT on transfer payments like welfare), and net exports (NX) (what we send out minus what we take in) Remember- GDP is just an estimator, it leaves out stuff like household production (preparing meals, laundry, etc), and underground economy (drug market, unreported income like babysitting and lawn mowing)

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GNP - Gross National Product- same as above except- it measures all the stuff produced
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## This note was uploaded on 02/26/2008 for the course ECO 001 taught by Professor Gunter during the Fall '06 term at Lehigh University .

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macro review sheet - Microeconomics- think small,...

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