PP_Slides_Class_10_Wednesday_February_13

PP_Slides_Class_10_Wednesday_February_13 - Good Afternoon...

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Good Afternoon!! Class 10 Wednesday, February 13
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1. For purposes of calculating GDP using the expenditure approach, which of the following is NOT included in the government expenditures account? a. the government’s purchase of pencils b. the payroll of the federal government c. the welfare payments made to the poor d. the government’s purchase of a computer e. none of the above
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Inventory Investment (Additional Inventory) -inventory on Dec 31 – inventory on Jan 1 = additional inventory - was negative in recessions in 1975, 1980, 1982, 1991, and 2001 -most volatile component of Investment
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2008 .69 euro/1 US$ or 1.45 US$/1 euro 1 1.18 euro/1 US$ or .85 US$/1 euro from 2000 to 2008 US$ is worth less euros US$ has weakened
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means US imports from EMU countries more expensive for US people US exports to EMU countries less expensive for EMU country people
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China’s currency is the yuan 2008 7.183 yuan/1 US$ or .139 US$/1 yuan usually see as 7.183 yuan/$ or .139 US$/yuan
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we usually think of imports as determined by income the more income people have the more imported goods they buy for simplicity in this course we say that imports are not determined by disposable income
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Hypothetical C+I+G+Xn Line
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Xn is autonomous Xn is not determined by disposable income for every amount of disposable income Xn is -.75 trillion $
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C is determined by disposable income -as disposable income rises, C rises but not as much -MPC is slope of C line I, G, Xn are autonomous amounts -as disposable income rises, they do not change - they are parallel lines
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Line Slope C MPC C + I MPC C + I + G MPC C + I + G + Xn MPC
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the basis for international trade specialization and exchange countries make the goods that they make for the lowest per unit costs and then trade those goods with other countries to get goods they want: end up with more goods overall
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self sufficient: both countries make both goods
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each country specializes in good it makes at lower per unit cost
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assume trade 1 train for 1 plane: now both countries have more goods than originally
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