Econ 104 Study GuideBill GoffeSection 1oMacroeconomics Vs. MicroeconomicsMacroeconomics– The study of the economy as a whole, including topics such as inflation,unemployment, and economic growthMicroeconomics– The study of how households and firms make choices, how they interactin markets, and how the government attempts to influence their choicesAnalyzes the total level of employment in an economy, why some economiesare more successful than others, what determines the inflation, etc.oBusiness Cycle– Alternating periods of economic expansion and recessionBusiness cycle expansion– Period of a business cycle during which totalproduction/employment are risingBusiness cycle recession– Period of a business cycle during which totalproduction/employment are decreasingFinancial System– Financial intermediaries and financial systemsoPart A: Measuring Real GDPGDP by Production– GDP for a nation’s economy is the market value of all finalgoods/services produced domestically in that yearGDP by Expenditures(flip side of production) – C + I + G + NXConsumption (C): Spending by households on goods/services, but not new houses.(68% in U.S.)Investment (I): Spending by firms on new factories, office buildings, machinery, andadditions to inventory; Spending by households/firms on new homes. (17% in U.S.)U.S. buys new Boeing 787 (yes, investment, new)U.S. buys fuel for jets (no, not investment, intermediate goods)I buy a new house (yes, new)I buy a house from 1916 (no, only counted first time bought)I put money in the bank for spring break (no)Ski factory stocks up for winter (yes, new goods)A factory in general (no, only counted once)Government Purchases (G): Spending by federal, state, and local governments ongoods/services. (18% in U.S.)Net Exports (NX)– Exports – Imports (-3% in U.S.)Total value of expenditures = Total incomeGDP: Does it measure well being?Germany: 1,436 Average Hours Worked Per Year; $38,300 GDP Per PersonU.S.: 1,804 Average Hours Worked Per Year;$46,600 GDP Per PersonSo, Germans have more leisure time than Americans even though Americahas a higher Real GDP per person.That means that GDP doesn’t really tellsomeone which country is better off.oPart B: GDP and MoneyMoney is an asset that does each of the following:1.Medium of exchange2.A store of value3.A unite of account4.Standard of deferred paymentU.S.: M1 = Cash + Checkable deposits ($2.9 trillion)
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