Notes - Lesson Objectives Discuss the real and nominal goals of macroeconomic policy makers and the lags in policy o Real Goals Potential Economic

Notes - Lesson Objectives Discuss the real and nominal...

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Lesson ObjectivesDiscuss the real and nominal goals of macroeconomic policy makers and the lags in policyoReal GoalsPotential Economic Growth (3%)Full Employment (5.5%)oNominal GoalsStable Prices (inflation) (2%)oLags in PolicyRecognition lag, time it takes policymakers to realize where theeconomy is headed. Fiscal and Monetary policy.Implementation lag, how long it takes for policies to be implemented by policymakers. Fiscal policy is relatively long. Monetary policy is very short, 15 seconds.Effectiveness lag, fiscal policy could be short (tax cuts). Monetary policy is very long.Identify differences between nominal and real economic variablesoNominal variables are the value of a good or service in terms of money (dollar value). While, real variables are the value of a good or service in terms of some other good, service, or bundle of goods. Another way of looking at it, nominal value of something is its money value in different years whereas real values adjust for differences in the price level in those years. In terms of GDP, it’s similar,nominal GDP is the total value for a year in dollars whereas real GDP is a unit-lessvalue that can be used to compare changes against a base year.Define stagflationoA persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.List what GDP includes and what it doesn’t includeoGDP is a measure of the market value of all finalgoods and services produced in a country during a period of time, typically one year. It includes only the market value of final goods and not intermediate goods. It only includes current production, it does not include value of usedgoods. The components of GDP are:Personal Consumption, expenses made by householdsInvestment, spending on domestic investment (fixed business assets purchased by firms, office buildings, machinery used to product other goods. Residential investment is spending by households or firms on a
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new single-family and multi-unit homes. It also includes changes in business inventoriesand inventory of final goods produced but not yet sold. Most important part of GDP, predicts future living standards.
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