ECon 3 thoughts

ECon 3 thoughts - Econ 3 thoughts. 1. Three macroeconomic...

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Econ 3 thoughts. 1. Three macroeconomic princiapls. a. Gross domestic product, i. Does not factor in environment damage or resource depletion. ii. Market value > of final goods and services produced in a country iii. CHINA HAS HIGH GDP AND US HAS LOW GDP, however GNP is opposite\ iv. Capital good is a long lived good that is used in the production of others. v. Value added < self explanatory. vi. **don’t forget purchasing an old house does not count in the GDP vii. Consumption expenditure 1. Durables, long lived consumer goods cars/furnitures 2. Nondurables shorter lived goods food/clothing 3. Services : largest component of consumer spending. viii.Investment, spending by firms on final goods and services, capital goods. 1. Business fixed investment, machinery, factories buildings 2. Residential investment, homes 3. Inventory investment addition of unsold goods to company inventories. ix. Government purchases 1. What government pays/buys does not include transfer payments. x. Net exports, equal exports minus imports 1. Exports what is produced within and exported xi. Y=C+I+G+NX xii. Measure real GDP by taking the amount produced and multiply it by base year. xiii.Not included in GDP 1. Leisure time, retire early, happiness level spent with family 2. Volunteering work < nonmarket economic activities.
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3. Quality of life 4. Poverty and economic inequality. xiv.>> ^^^ What can GDP measure 1. Availability of goods and services 2. Health and education xv. Government purchases happen at the cost of individuals so therefore GDP per person does not really measure the well-being. b. Rate of inflation, i. Consumer price index > CPI 1. How much it cost to live in a particular period. 2. CPI = Cost of goods/services in current year divided by goods and services in the base year. ii. Price index > example would be CPI measure a specific area of cost. iii. Inflation, the annual percentage rate of change in the price level. iv. Nominal quantity > measured in terms of its current dollar value v. Real Quantity, take nominal quantity and divided it by CPI. 1. ^^^ the above process is called deflating. vi. Indexing. In order to maintain constant buying power, the government needs to increase the nominal quantity each year by a percentage similar to the rate of inflation. vii. CPI is not a perfect measure of the rate of inflation and it overstates it because: 1. The quality of goods and services.< also known as the quality adjustment bias such as Macs are more expensive than PCs because they are perform much better despite having the same functions 2. Fix basket of goods < if theres like a increase in prices in something > customers can simply change into something different which creates the substitution bias effect. They don’t have to purchase the good at such as high price. viii.Price level. Measure of overall level of prices at a particular point in time
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ECon 3 thoughts - Econ 3 thoughts. 1. Three macroeconomic...

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