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Important issues in macroeconomics

Important issues in macroeconomics - 1 Important issues in...

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1. Important issues in macroeconomics a. Macroeconomics, the study of the economy as a whole, addresses many topical issues: Ex. income average, not in particular field+Ch 4 inflation i. Why does the cost of living keep rising? 1. inflation Ch 4 ii. Why re millions of people unemployed, even when the economy is booming? 1. iii. What causes recessions? Can the government do anything to combat recessions? Should it? iv. What is the government budget deficit? How does it affect the economy? v. Why does the US have such a huge trade deficit? 1. imports>exports vi. Why are so many countries poor? What policies might help them grow out of poverty? 1. US growth rate 3/3.5%, GDP per cap steady increase. 2. Why learn macroeconomics? The macro economy affects society’s well-being a. Each 1 poitn increase in the unemployment rate is associated with i. 920 suicides ii. 650 homicides iii. 4000 more mental people iv. 3300 more people sent to prison v. 37k more deaths b. The macro economy affects your well-being. i. Unemployment is inversely proportional to the well being of the economy 1. ex. good econ, low unemployment high wages 2. ex. bad econ, high unemployment, low wages. c. Macro economy affects politics i. High inflation and unemployment can lead to change in party control. Chapter 2 3. Gross Domestic Product: expenditure and Income a. 2 definitions i. Total expenditure on domestically produced final goods and services ii. Total income earned y domestically located factors of production b. Expenditure equals income because ever dollar spent by a buyer becomes income to the seller so above definitions tend to be equal (aka spending=income) 4. Final goods, value added and GDP a. GDP= value of final goods produced= sum of value added at all stages of production. i. Must be produced inside the US b. GDP=Consumption+ investment +government spending + net exports
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i. Y=C+I+G+Nx c. The value of the final goods already includes the value of the intermediate goods, so including intermediate and final goods in GDP would be double counting. i. Ex. bread, it doesn’t grow in trees, you can’t pick that shit. ii. Start with wheat, gets converted into flour, then it is baked into bread and sold at Safeway. Wheat .50 Flour 1.25 Bread 1.50 Safeway 2.50 sale price value Value added= .50+.75+.25+1.00= 250 iii. So either take value added or final value to calculate GDP 5. Consumption C a. Definition : the value of all goods and services bought by households includes i. Durable goods, last a long time ex. cars, home, appliances 1. even if not sold, it is included in GDP 2. COUNTS ON THE YEAR IT WAS PRODUCED, NOT SOLD ii. Non durable goods- last a short time ex. food, clothing 1. if not sold, tomatoes not sold in one year, won’t sell next year= NOT part of GDP iii. Services- work done for consumers ex. dry cleaning, air travel.
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