Econ 104 Study Guide Bill Goffe.docx

Econ 104 Study Guide Bill Goffe.docx - Econ 104 Study Guide...

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Econ 104 Study Guide Bill Goffe Section 1 o Macroeconomics Vs. Microeconomics Macroeconomics – The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth Microeconomics – The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices Analyzes the total level of employment in an economy, why some economies are more successful than others, what determines the inflation, etc. o Business Cycle – Alternating periods of economic expansion and recession Business cycle expansion – Period of a business cycle during which total production/employment are rising Business cycle recession – Period of a business cycle during which total production/employment are decreasing Financial System – Financial intermediaries and financial systems o Part A: Measuring Real GDP GDP by Production – GDP for a nation’s economy is the market value of all final goods/services produced domestically in that year GDP by Expenditures (flip side of production) – C + I + G + NX Consumption (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, and additions 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 on goods/services. (18% in U.S.) Net Exports (NX) – Exports – Imports (-3% in U.S.) Total value of expenditures = Total income GDP: Does it measure well being? Germany: 1,436 Average Hours Worked Per Year; $38,300 GDP Per Person U.S.: 1,804 Average Hours Worked Per Year; $46,600 GDP Per Person So, Germans have more leisure time than Americans even though America has a higher Real GDP per person. That means that GDP doesn’t really tell someone which country is better off. o Part B: GDP and Money Money is an asset that does each of the following: 1. Medium of exchange 2. A store of value 3. A unite of account 4. Standard of deferred payment U.S.: M1 = Cash + Checkable deposits ($2.9 trillion)
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U.S.: M2 = M1 + Savings accounts ($11.7 trillion) Every time a dollar is used to make a purchase in a country, it will NOT always show up in GDP. Underground Economy – Buying and selling goods/services that is concealed from the government to avoid taxes, regulation, or because it is illegal.
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