marcroeconomics - Macroeconomics Study Sheet MACROECONOMICS...

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View Full Document Right Arrow Icon More free study sheet and practice tests at: More free Study Sheets and Practice Tests at: Macroeconomics Study Sheet MACROECONOMICS Macroeconomics studies the determination of economic aggregates . Output tends to rise in the long run ( long- term economic growth ), but fluctuates in the short run ( business cycles ). SHORT TERM FLUCTUATIONS IN OUTPUT AND EMPLOYMENT (BUSINESS CYCLE) - In the short run, employment fluctuates with output. Unemployment rate = percentage of people in the labour force who are unemployed. - Inflation refers to the process of rising prices. Inflation rate = annual percentage change in the price level. - The real interest rate is equal to the nominal interest rate, adjusted for inflation. - The exchange rate is defined as the number of units of domestic currency required to purchase one unit of foreign currency. Circular flow of income and expenditure (Y = C + I + G + NX). THE MEASUREMENT OF NATIONAL INCOME GDP = value of all final goods and services produced in an economy during a specified period of time Volumes Value of domestic output (GDP) = value of the expenditure on that output = total claims to income that are generated by producing that output. Three alternative ways to measure income. GDP by value added : Value of a firm´s production – value of intermediate goods bought from other firms. GDP from the expenditure side: C a + I a + G a + (X a – IM a ). GDP from the income side : Factor payments + depreciation + indirect taxes (net of subsidies). Implicit GDP deflator = Nominal GDP * 100 Real GDP CONSUMPTION (C) Expenditures by households on goods and services. INVESTMENT (I) Expenditures on capital equipment and buildings by firms. Expenditures on new homes by households. Change in business inventories. GOV´T EXPENDITURES (G) Expenditures on goods and services by all levels of the government. Does not include transfer payments! G ROSS DOMESTIC PRODUCT NET EXPORTS (X A – IM A ) Value of exports minus value of imports. GDP from the Expenditure Side WAGES, SALARIES, AND SUPPLEMENTAR Y LABOUR INCOME Total payments by firms for labour services. INTEREST AND MISCELLANEOUS INVESTMENT INCOME Net interest payments to households. Payments for the use of land (incl. rent for housing). N ET DOM . INCOME AT FACTOR COST BUSINESS PROFITS Total profits made by corporations. Net income of farmers and non- farm unincorporated businesses PRODUCT AT MARKET PRICES INDIRECT TAXES LESS SUBSIDIES To account for the difference between factor cost and market prices. CAPITAL CONSUMPTION ALLOWANCE (DEPRECIATION) To account for the difference between net and gross domestic product. GDP from the income side SHORT RUN VS. LONG RUN MACROECONOMICS Potential GDP depends on the amount of factors available, the normal factor utilization rate , and factor productivity .
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This note was uploaded on 04/12/2011 for the course ECONMICS 100 taught by Professor Carr during the Spring '11 term at University of Toronto- Toronto.

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marcroeconomics - Macroeconomics Study Sheet MACROECONOMICS...

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