Final_Review fall 2008

Final_Review fall 2008 - Macro Review Chapters 10-23...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Macro Review Chapters 10-23 Microeconomics studies the individual components of economy while Macro studies that overall economy. Three important steps on Macro analysis. Step 1. Understand the important macro-variables (GDP, inflation and unemployment ) Step 2. Understand models to explain GDP in both long run and short run. Step 3. Understand macro policies to influence economy in both the long run and short run. Macro Variables Gross Domestic Product - Value of all final goods and services produced in the domestic economy -intermediate goods are not included in GDP since they are already included in the value of the final good produced. GDP is an important measure of economic activity because if an economy produces more goods and services there will be more income and more jobs and we can assume that the economy will be better off. GNP measures the value of all goods and services produced by domestic producers regardless of where they are located. GDP measures both spending on goods and services and income earned by factors of production Expenditure method . To count up the value of all goods and services produced in the economy we can count up all of the money spent on final goods and services. There are four types of spending on goods and services: Consumption C – is the spending on goods and services by households used for consumption. (approximately 2/3 of GDP are consumption goods) Investment spending – I - Goods purchased by firms . 3 categories: 1. Spending on capital goods (any goods used in the production of other goods) 2. Change in inventories (these must be included since they are using resources in the economy even if they are not sold) 3. Construction spending (including residential spending) Investment spending can also be broken down into Gross investment and Net investment: Government Expenditure - G – This includes all money spent by the government on final goods and services. This does not include money spent on transfer payments including welfare, unemployment, social security and so on. Net Exports NX =Exports – Imports. Exports must be included in GDP since these are goods produced in the economy and thus increase economic activity. However imports must be subtracted from GDP since these are goods that are not produced in the economy and thus do not lead to economic activity. The Expenditure approach is thus: Y=GDP=C+I+G+NX Nominal GDP = sum of Pcurrent*Qcurrent which measures the value of goods produced in the economy valued at current market prices. -The problem with nominal GDP is that it can increase either if output increases or if prices increase. Real GDP on the other hand holds prices constant by valuing the goods using a base year price and thus Real GDP can only increase if output increases. Real GDP
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/16/2008 for the course ECO 181 taught by Professor Cherry during the Spring '07 term at SUNY Buffalo.

Page1 / 7

Final_Review fall 2008 - Macro Review Chapters 10-23...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online