Chapter 26 _ Intro to Macroeconomics _ ECON 2020.pdf - \u201cThis chapter provides an overview of the data that macroeconomists use to measure the status

Chapter 26 _ Intro to Macroeconomics _ ECON 2020.pdf -...

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“This chapter provides an overview of the data that macroeconomists use to measure the status and growth of an entire economy as well as a preview of the models that they use to help explain both long-run growth and short-run fluctuations. Because it is an overview chapter, it raises many unanswered questions. Subsequent chapters will explain these topics in much greater detail.” 26.1 [Performance and Policy]: Explain why Economist focus on GDP, inflation, and unemployment when assessing the health of an entire economy. Real GDP measures the final value of all goods and services produced within the borders of a country within a specific time period, usually a year. This is useful because it can tell us if an economy’s output is growing. To determine Real GDP economists first calculate Nominal GDP which totals the dollar value of all goods and services produced within the borders of a country using their current prices during the year that they were produced . Nominal GDP uses the prices in place in the year the output was produced so it creates the problem of increasing from one year to the next without an increase in output. Consider a commercial blacksmith who produced 10 spiral staircases last year and 10 identical staircases this year -- the output did not change but say the blacksmith changed the prices of the staircases from $10,000 last year to $20,000 this year, Nominal GDP increased from $100,000 to $200,000. Without knowing about the price increase, we could unwisely conclude output changed from 10 to 20. Real GDP statistically eliminated these kinds of price changes and as a result we can compare Real GDP numbers and really know if there is a change in output (rather than prices). Basically, Nominal GDP takes the prices as they were sold, so something that is $20,000 will be shown as $20,000 raised in Nominal GDP . Real GDP takes into thought inflation. So if the Real GDP and Nominal GDP are different, there is obviously a difference in either price value, output, or inflation, etc. Macroeconomics uses models to explain why such drastic changes rates of growth, unemployment, and inflation exists between different countries and why they can increase so substantially from period to the next. Models also provide insight into how government policy can influence rates of growth, unemployment, and inflation. Macroeconomics studies long-run growth and short-run economic fluctuations Macroeconomists focus their attention on three key economic statistics: Real GDP , Inflation, and Unemployment . _____________________________________________________________________________________ 26.2 [The Miracle of Modern Economic Growth]: Discuss why sustained increases in living standards are historically recent phenomenon. Rapid and sustained economic growth is a modern phenomenon. Before the industrial revolution began in the late 1700’s in England, standards of living showed no virtual growth over hundreds or even thousands of years. Take for example a peasant in the Roman empire, their standard of living would’ve been virtually the same since the start of the Roman empire in year 500 B.C.E. as it was in the end of Roman empire around 1,000 years later. This was also the same for, say, a Chinese peasant as
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