notes 4-1 - Investment spending depends on 1 Profits 2...

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How to measure and explain change in GDP Businesses will not produce if it has no customers (no demand) Demand fluctuates over time Unemployment results from the GDP not being big enough Why does demand fluctuate? - Have to look at four types of spending (consumer, investment, government, Imports- exports) Consumer spending = about 2/3 of GDP (fairly stable/passive) This money comes from income, savings, and borrowing What decides spending?: 1. Income (How much you make) 2. Consumer confidence (how much confidence people have in the economy) 3. Wealth (How much wealth a person already has) 4. Interest Rates (cost of borrowing) 5. Consumer Debt Levels (How much debt you have) 6. Expected future inflation (people may want to buy before the price rises) 7. Bad Weather (short term) (don’t want to drive in bad weather) - Hurricane Katrina
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Unformatted text preview: Investment spending depends on: 1. Profits 2. Interest rate 3. Tax laws 4. Oil prices 5. Pollution regulations 6. Price controls 7. Capacity utilization (expansion) 8. Biz-con 9. Consumer protection laws (i.e. airbags) 10. Worker protection rights (i.e. OSHA) 11. Corporate debt 12. Vacancy rates Investment is volatile (unlike consumer spending). Government decisions are based more so on politics than economics Net exports depends on 1. exchange rate 2. our trade partners’ economies 3. protectionism (trade barriers) Inflation Inflation is a widespread rise in prices Prices go up because of- economic growth- government policy (i.e. sales tax increase)- Outside inflation Growth inflation: Production growth means more need, which causes shortages This drives up prices for physical and human capital...
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notes 4-1 - Investment spending depends on 1 Profits 2...

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