Economics study guide

Economics study guide - What is output? It is the total...

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What is output? It is the total value of goods and services produced (Y). What is the unemployment rate? % of people who want a job but don’t have one (UR). What is inflation? Growth rate of the price level ( ). How are Presidential elections decided by the state of the macroeconomy? - 1932 Presidential election – incumbent Herbert Hoover looses to challenger Franklin Roosevelt. o Great Depression 1929 – stock market crash, failures of banks o Between 1929-1932 Y fell in real terms by 33% UR rose from 3% to 25% Deflation (from default mortgages) fell by 23% - 1976 Presidential election – Incumbent Gerald Ford looses to challenger Jimmy Carter o 1970s – 1973 price of oil jumps dramatically (OPEC reduce Y) stagflation (inflation+stagnation, declining economy or recession where real output declines for 2 sessions with increasing prices) Y fell in 1974 and 1975 (recession) UR rose to 8.5% by 1975 rose to about 9% by 1975 o “Misery index” = UR + second highest ever - 1980 Presidential election – Incumbent Carter looses to challenger Ronald Reagan “Are you better off?” slogan o 1979 second dramatic jump in oil prices more stagflation Y fell by 1980 UR rose to over 7% in 1980 rose to 10% - 1992 Presidential election – Incumbent G.H.W Bush looses to challenger Bill Clinton o 1992 Economy in recession Y fell in 1991; stagnant in 1992 UR over 7% in 1991+1992 not a problem, about 3% - 2004 Bush vs. Kerry Y grew slowly 2000-2003: but grew over 4% in 2004 UR rose to 6% in 2003: but fell to 5.5% in 2004 about 2-3%, not an issue - Current economy:
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Y growth rate of real GDP: 3 rd quarter 2008 = -.05% (rose in 1 st Q, 2 nd Q) Consensus forecast: real GDP fell 5.5% in 4 th Q UR: Dec. 2007=5%, jumps from 5-5.5% in May 2008 keeps rising, Dec. 2008=7.2% (kept by bureau of labor statistics) : -1% Oct. 2008, -1.7% Nov., -0.7% Dec. } skewed by gases -0.1% Oct., 0 Nov. Dec. } excludes food and energy Output (Y): How is it measured? To allow for meaningful comparisons over time and across countries Most common measure – Gross Domestic Product (GDP) - Nominal GDP – Market value, at current prices, of all domestically produced final goods and services produced this period (sum of PxQ) o Alternative way of constructing NGDP = sum of Value Added (VA) of all transactions final+intermediate 1. Only NEWLY produced included, not used to avoid double-counting 2. Only domestic output, not foreign (value of imports not included) 3. Only final, not intermediate (final – sold to its end user, intermediate – used in production of another good) What are the 4 categories of Final Transactions? C + I + G + (X-M) NX=net exports=Exports-imports (X-M) 1. Consumption (C) – almost anything you and I spend on 2. Investment (I) – refers only to purchases of tangible (durable), physical capital assets (business plant and equipment, new home), does not include
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Economics study guide - What is output? It is the total...

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