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Chapter 7 Notes

Chapter 7 Notes - {ii ’7 firm Moesoriog “fetal...

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Unformatted text preview: {ii}. ’7 firm}: Moesoriog “fetal Production and iocome Definitions . Microeconomics is the study of how households and firms make choices, how they 1nte1act in markets, and how the overnment attem ts to influence theii choices. g p ““7 time 6* People. I Macroeconomics is the study of the economy as a whole, including topics such as inflation, unem Io men and economic owth P Y ”‘7 gr 7 (Moog . Business cycle is the alternating periods of co omic expansion and eficonomic 1ecession. 3 Sheri {lung 86* omos at GE 1- - Expansion ts the period of a busiiifi s cycle dui 111g which total production and total employment are increasio g 111C; we; in GDP 1- Recession is the period of a business cycle during which total production and total employment are decreasin . ‘ . g ».)- (L [3'7 54:55:13" l 1'\ C3D? _ 1! Economic growth' 15 the LO“zilailityfi ofk an economy to produce increasfiig quantifies of goods and services _ We? 5ji‘iol l1». {1%, 555/141}, “353355? h fgill‘iiufl Iii)? tiff}? 53b1,} inflation rate 15 them pemcé nage more e in the price ievel fiom one year’s the next. . / ff}. P012 $1371) iii/SP {teem ”€53“ ME" _fl M %;6€é\) Gross Domestic i’roduct {GEP} Measures Totai Prodoction “513125: liar-15 - Gross Domestic Product £6!)le the market veEue of all final goods and services produced in a country during a period of time, typiceily one year. 0 GDP is measured using market values, not quantities. 0 GDP includes only the market value of final goods. II Final Good or Service— one that is purchased by its final user and is not included in the production of any other good or service 0 Intermediate Good- a good or service that' is an input into another good or service such as a tire on a truck. GDP inctudes only current production. 0 A Table is a final good; wood is an intermediate good. —, 1': Could loicrrreci ole, comic. $01111; geociie 5:11:65} it? Could ”holes. - _ Price. cl ilac PM 55 (Leveled 111, 66115 “flit: all“ :tt Hole ’ l1 LE: 2 ¢5{f\ ‘ \i \\. / \ K} V‘- - RE i5 "1 pg , \llgg mg f" ”K \QE / “My J Etx 2.. ‘5 {W E GEM >551: Fm” ECOV‘DWW: 61“ fixfik “ LDEAU Elm—'— ”8311): ‘“ M _ E . ’ M—%.H,._“___m M (Mm W W“ fl/ figgfiigg if)“ Graig—=3 31: % )chl..£,\:£<5p a? G: he, “L253; flagcxj EA!“ 5‘3? )9 How do W, OAQW‘MW Whip MUM 9;} 3L, [‘3 PW) 1&0»; “'3’ Swami/“f; 3i, ZPQ ) :1: €_ A Amw A3360” Jw if: 03: 1M; W mm}? Dflfiwf: 3 L\:R :WFE. R) ' (”$.qu L % [90 fli‘; \ng) ‘ = :33 GB? 3:120 {I A; (vie!) ‘ a RP“ : 5 x 12:39:; *i-fifi/‘xéii‘a Elfin 1“- UH {it}? and income When we measure the value of totai production in the economy by calcuiating GDP, we are simuita neo usiv measuring the vaiue of total income. Firms seIE goods and services to three groups: domestic househoids, foreign firms and househoids, and the government. . ‘1 Who produces goods and services? c.) firms, ‘1, ngfiig o Who receives the profit from production of goods and services? Transfer Payments-fl payments by the government to individuais for which the government does not receive a new good or service in return. 0 Welfare, Sooiai Security, etc; 0 Nothing is produced; just a t, Look at the diagram on P. 217. :3 of moneyr from one individual to another. Components of G1)? Qpiiai I Consumotion -- spending by flu Eon goods and services, not inciuding spending on new houses. 0 Spending on new houses is considered investment. 0 What about spending on oio houses? any {iii {:33} WW3, “h W‘dflifiinf enema-5: (house; ‘ 0i (it: it) ‘ifiétf‘fim‘fii ifivéfiiiiiiji iii 33’s; $35,. of», 1}"? ii‘i’fi it} investment—divided into three categories: @Ni {fig ‘ 0 Business fixed investment -— spending by firms on new factories, office buiidings, and Q machinery used to produce other goods. , \idafih ; o Residentiai investment -- spending by househoids on nefi houtsing 0 Changes in business inventories are also inciuded' in investment. - i .5, . 5T“ {i "‘ swig iii? {fugiiiii 3?"? itikiwiifi Efifiifi Eiisjgr {his ,5; gfiég 9 Government 9urchases~ spending by federai, state, and iocai governments on goods and services, such as teachers’ saiaries, highways and aircraft carriers. Wooten} .3 iifiéfii 5-3? were: —T€UtWt€> Péaiz {it} .. a fitivite. )3th one: WUoW PU y i‘WipUj/I -' at” nai +7345”; oars»; 'an Ling: észtflLQ a Net Exgort —exports mmus Imports ' i, oi} m3: §+ 0 Exports"- domestic goods or services that age sold to foreign markets. N Chinese business man buys financial services from American firm. 0 imports “foreign goods or services that are soid to the domestic market. I You buy anything with the inscription 'iViade in China’ {oniess you‘re in China). a A few notes about actuai ieveis of the components of GDP 0 Consumer spending on services is greater than the sum of spending on durabie and nondurable goods. 0 Business fixed investment is. the largest component of investment. 0 Purchases made by state and iocai governments are greater than purchases madeby the federai government. 0 imports are greater than exports, so net exports are negative. Measuring GDP 0 Vaiue Added— refers to the additionai market value a firm gives to a product and is equai to the difference between the price for which the firm seiis a good and the price it paid other firms for intermediate goods. Reduce“ Shertcemings of GB? 0 Can’t measure househoid production or the underground economy. 0 Househoid Production-- goods and services people produce for themselves. 0 Cooking at home vs. eating in a restaurant. 0 Washing your own clothes vs. a fluff and fold service. 0 Underground Market—the buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are often illegal. o illegal Drugs 0 Guns 0 Gambling - Can’t measure well—being (Money can’ buy everything). 0 Value for ieisure not included. 0 Pollution is not measured. 0 Crime is not accounted for. 0 However, does provide a tangible measure of how weil off a society is doing. I Countries with high GDP/capita tend to have low ievels of pollution, crime, and have more ieiSure. Real vs. Momma; GB? 0 Real—- the vaiue of final goods and services evaluated at base—year prices. - NominaI-— the value of final goods and services evaluated at current-year prices. GD? defiater - Price Levei—- measure of the average prices of goods and services in the economy. 0 GDP Deflator—- a measure of the price level, calcuiated by dividing nominal GDP by real GDP and multiplying by 100. ”W i i TTQTfiTTTET éfiufl CT :9 .Cfm?fi{ia D) W) ”“55 cm CT TCs:f“:‘____'__. TBS , rawwwmfimmmmnWflTmmmmmmmmw;Wflwmmmw b) , R!“ 1;”qu " Tiff W30) fiflmfir‘ Tram 8,05 3,353 ,, ‘deeéTW‘ TTTH.\NNWNNN ”Mmmmmmnu,,"wwiWWWWfflwflnmmmmm; .__=,.J ’1 y . 999C *5" 50m grep 1;? DP . . y y. “999929999999 haemfiwky9?}fl¥flrfléy9939W9j ....m9§9yay9y ..i§3::9—€~‘ir 9391 @999 19er 999999999 are “if“ s a, 7 .9 3 9 ,1, w. . - a As“ i Q's" 9:} ’\ if ._.. ”A... L M“ ”’5” QB?” LTD? 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