Econ305 study guide - Chapter 1 the Science of...

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Chapter 1 – the Science of Macroeconomics 1. GDP – measure of output a. Grows over time (today 8x higher than 1900) b. 2010 Q2, 1.6% 2. Inflation – overall average price level a. Rose by 10% in the 1970s, recently by 2-3% b. Today by 1% 3. Unemployment a. Today rate is 9.5% b. Labor force = 154 million people willing and able Theory as model building 1. Endogenous variables – salve for the value a. Y = income b. C = consumption c. I = investment d. P = price level e. r = real interest rate 2. Exogenous variables – given, predetermined a. G = government spending b. T = taxes c. M = money supply 3. Stock variable – measured at a specific point in time 4. Flow variable – quantity measured per unit of time a. Y is a flow, wealth is a stock b. C is a flow, M is a stock c. I is a flow, Capital in economy is a stock d. Government deficit is a flow, debt is a stock Q d = f(P,Y) Q s = f(P,P materials ) Sticky vs. Flexible prices - P is sticky in the short run so Y adjusts - P is flexible in the long run and Y is fixed Chapter 2 – the Data of Macroeconomics 1. GDP a. Nation’s total income and expenditure on output b. Used goods do not count c. Inventory i. Thrown out doesn’t count ii. Kept inventory is like a used good d. Value added i. Value of output – value of intermediate goods e. Imputed value f. GDP deflator, implicit price deflator for GDP = nominal GDP/Real GDP i. = P/P base
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