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1 Question - 9 first consider consumption C(1 aprox = 2/3of...

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1) 1 Question: how is size of economy the GDP-determined and what makes it rise and fall over time? I. -This is the basic question of macroeconomics 2) 2Demand= desire +ability to buy 3) 3businesses will not produce if they cannot sell- a business would go bankrupt if it produced but had no customers- II. -So there must be demand for businesses to produce 4) 4 demand fluctuates up and down over time 5) 5 answer to the question: GDP is determined by demand GDP 6) 6 Economic Growth= Increasing Real GDP III. -Recession= Falling Real GDP 1) Link to unemployment: companies need for workers depends on their sales wich depend on spending= demand Unemplyment results when the Real GDP is not big enough to create jobs so unemplyment is the result of the not enogh speng in the economy -Remember that GDP=C=I=G=(X-M) -spending comes from 4 sources 1 consumer spending 2 Investment spending 3 Government purchases 4 International trade
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8 so why does the Demand fluculate
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Unformatted text preview: 9 first consider consumption C (1) aprox = 2/3of aGDP’ 2) C is relatively stable and doesn’t falcate dramatically habits 3) C is “passive” i.e. C repoondes to GDP changes more than it causes GDP changes 4) Money for the consumer spending comes from I(i) after-tax income (ii) savings from earlier times (iii) barrowing *some people spend mor than their after-tax income -How?-They could barrow or they could spend money that they had saved earlier in life 10c depends on 1)after-tax income which in turn depend on factors such as a) Jobs b) Taxes c) Interest rates d) Government policies on transfer payments like social security, unemployment benefits e) Wages and salaries, commissions f) Hours worked e.g. overtime g) profits sharing, bonuses 2 Consumer confidence- psychology of the consumer- depends on unemployment, war, stock market, oil, prices, inflation, etc. 3 wealth effect e.g. stock market housing market...
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1 Question - 9 first consider consumption C(1 aprox = 2/3of...

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