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Midterm Review Macroeconomics

Midterm Review Macroeconomics - Macroeconomics Review...

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Macroeconomics Review Chapter 1  Microeconomics within Macroeconomics With in economic, macroeconomics focuses on the broad economic phenomenon.  On the other hand microeconomics is  more interested on the individual player and their interactions.    Aggregation  is the process of summing individual economic variables to obtain economy-wide totals. The international Economy Open economy:  an economy that has extensive trading and financial relationships with other national economies Closed economy:  an economy that does not interact economically with the rest of the world Trade surplus  is when you export more than you import. Trade deficit  is when you import more than you export. Classical Versus Keynesians  Another cause for disagreement is on who drives the economy.  Does Supply drives Demand (Classical or Keynesian) or  vice versa. The Classical approach  builds on “the invisible hand” of the market.  It also assumes the prices will adjust to equilibrium  fairly quickly.  Thus, it generally disapproves of government intervention. The Keynesian approach  assumes the prices do not adjust so quickly.  It encourages the intervention of government at  times of high unemployment.  It essence it believes that to reach equilibrium the economy will need some help form  government.   
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Chapter 2  National Income Accounting: the Measurement of Production, Income and Expenditure  The National Income Accounts  are an accounting framework used in measuring current economic activity.   Three alternative approaches give the same measurements 1. Product approach: the amount of output produced 2. Income approach: the incomes generated by production 3. Expenditure approach: the amount Using the Product Approach: It measures economic activity by adding the market value of goods produced, excluding any goods used up in  intermediate stages of production (Value Added concept). Value Added  of any producer is the value of its output minus the value of the input if purchased from other producers. The advantage of  value added  is that it automatically includes final goods and excludes intermediate goods from the  measure of total output. Using the Income Approach: The income approach  measures economic activity by adding all income received by producers of output, including wages  received by workers and profit received by owners of firms. Using the Expenditure Approach: The Expenditure Approach  measures the activity by adding the amount spent by all ultimate users of output.  This means  final product.  Why the Three Approaches Are Equivalent? 1.They must be by definition
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