Final ECO Study Guide

Final ECO Study Guide - Allison McDannel ECO 201 Bill Even...

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Allison McDannel ECO 201 Bill Even Final Exam Study Guide I. Introduction a. The causes of the great recession a.i. High risk (“sub prime”) mortgages became more common over past decades a.i.1. Low down payments a.i.2. Poor credit histories a.ii. Mortgage default rate rise in 2008 because: a.ii.1. Housing prices fell a.ii.2. Adjustable rate mortgages “reset” a.ii.3. Worsening economic conditions b. Government responses to great recession b.i. Feb 2008: Economic Recovery Act b.i.1. Approval of $168 billion stimulus package b.i.2. Tax rebates to 130 million households b.i.2.a. $600 for single b.i.2.b. $1200 for married b.i.3. Booster shot for US economy II. Chapter 4: Measuring GDP and Economic Growth a. Definition of GDP: the market value of all final goods and services produced in a country in a given time period a.i. Market Value a.i.1. Goods and services are valued at their market prices a.i.2. GDP rises if prices rise a.ii. Final goods and services a.ii.1. Bought by final user a.ii.2. Intermediate goods are produced by one firm, bought by another, and used as a component of a final good/service a.ii.3. Exclude intermediate goods to avoid double counting a.iii. Produced within a country a.iii.1. Any domestic production, regardless of who owns the resources a.iv. In a given time period a.iv.1. Production during a specific year (sales of used items excluded, except value of service in sale) a.iv.2. Inventory adjustments account for goods produced in one year but sold in another year b. Measuring GDP b.i. Expenditure side b.i.1. Consumption (C)
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b.i.1.a. Total payment for consumer goods and services b.i.2. Investment (I) b.i.2.a. Purchase of new plant, equipment, and buildings b.i.2.b. Additions to inventories b.i.3. Government spending (G) b.i.3.a. Government purchases of goods/services from firms b.i.3.b. Excludes “transfer payments” such as SS and unemployment insurance b.i.4. Net Exports (M-X) b.i.4.a. (Exports-imports) b.i.4.b. imports subtracted because counted as part of C, I, G, and are not part of domestic production b.i.5. GDP=C+IG+(M-X) b.ii. Income side b.ii.1. Income includes b.ii.1.a. Compensation of employees b.ii.1.b. Rental income b.ii.1.c. Net interest b.ii.1.d. Corporate profits b.ii.1.e. Proprietors b.ii.2. Two adjustments to income required b.ii.2.a. Indirect taxes minus subsidies are added to get from factor cost to market price b.ii.2.b. Depreciation (or capital consumption) is added to get from net domestic product to gross domestic product b.iii. Gross vs Net investment b.iii.1. Gross investment- total amount spent both buying new capital and replacing depreciated capital b.iii.2. Net investment- amount by which the value of capital increases b.iii.2.a. Equals gross investment minus depreciation b.iv. Nominal vs Real GDP b.iv.1. Real GDP- value of final goods and services produced in a given year when valued at the prices of a reference base year b.iv.2. Nominal GDP- value of final goods and services produced in a given year valued at prices of that year
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This note was uploaded on 11/14/2011 for the course ECO 202 taught by Professor Normmiller during the Spring '08 term at Miami University.

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Final ECO Study Guide - Allison McDannel ECO 201 Bill Even...

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