Final Exam - Summary.docx - Econ 104 Final Exam Section 1 What is GDP GDP for a nations economy is the market value of all final goods and services

Final Exam - Summary.docx - Econ 104 Final Exam Section 1...

This preview shows page 1 - 3 out of 15 pages.

Econ 104 – Final Exam Section 1 What is GDP? in that
Image of page 1
Interest Rates Rate at which we borrow and lend using other’s funds and paying for it Where do interest rates come from? Supply & demand by lenders & borrowers Monetary policy is changes in interest rates & “money supply” by a country’s “central bank” (part of the government) - U.S. cent. bank: Federal Reserve (“ Fed ”) -> Bank for banks Fed’s “ dual mandate ” from Congress: “promote effectively the goals of maximum employment, stable prices* and moderate long-term interest rates” *Stable prices – Fed takes as 2% inflation. - Key Fed tool – federal funds interest rate • what banks charge each other for overnight loans – now at 1.25% Fiscal Policy - changes in federal expenditures & taxes • these 2 are changed independently* - controlled by the President & Congress Government budget deficit = federal expenditures – federal taxes Funds for the deficit come from the U.S. Treasury borrowing from investors by selling them bonds Federal debt : total amount of bonds sold or the accumulated deficits federal debt: $14.6 trillion ( 77% of GDP ) Interest payments on the federal debt: $269 billion ( 1.4% of GDP ) borrowing ( deficit ) pays for any expenditures not covered by taxes federal debt = accumulated deficits GDP Deflator Uses nominal & real GDP to measure the “ price level ” (average price of all goods and services in an economy) def : GDP deflator = (nominal GDP/real GDP) • 100 The GDP deflator is a “ price index. inflation = %Δ price index %Δ GDP deflator = inflation %Δ real GDP = economic growth %Δ "=" ("final - initial" /"initial" ) • 100 high prices ≠ high inflation. Deflation is a fall in prices while disinflation is less inflation The CPI can be used to remove inflation from nominal prices & wages
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 15 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture