macro econ cumulative review

macro econ cumulative review - Macroeconomics Cumulative...

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Unformatted text preview: Macroeconomics Cumulative Review Outline From the Beginning- Basics o Econ is about who makes what, who gets what, and how much o Micro focused on individual choices o Macro starts from the question: things happen that affect the entire economy, what are they?- Three Questions o The Business Cycle Depressions Extended falling employment and GDP Recessions short fall in employment and GDP Expansions o Employment and Unemployment What causes them? o Long run growth Secular long run growth Growth independent of the business cycle What causes it?- Why? o These are the things we want to find out o If you dont have bread, you dont have anything How do we measure these things?- Basics o Two important things: Output Unemployment- Output o GDP Market value of all final goods and services produced within a country in a given period of time. Three ways to measure Value added o Measures production o Price for selling a new car minus the cost of the inputs (steel, etc.) o Measures value of producing a final good or service Factor income earned o The money that firms make has to go somewhere o Eventually, it will all flow back to households o Wages, interest, rent, profit Spending o Y=C+I+G+NX o Money flows from households to firms o Also takes into account government spending and net exports Where did this come from o Simon Kuznets and the 1930s o National income accounts Circular Flow Diagram Real GDP Wait a minute, how do you compare total up GDP when you have apples, oranges, cars, etc.? You add up the dollars Wait a minute, the value of a dollar (prices) changes Enter real GDP o GDP measured as if prices hadnt changed o How to: (Q of apples) year 1 x (P of apples) year 1 +(Q of oranges) year 1 x (P of oranges) year 1 Real GDP in base year (Q of apples) year 2 x (P of apples) year 1 +(Q of oranges) year 2 x (P of oranges) year 1 Real GDP in year 2 Real GDP as PPF o Expansion of GDP equals an expansion of the PPF o Changes in prices Actually changes in the value of a dollar Two ways to measure: GDP Deflator o Nominal GDP x 100 = GDP deflator Real GDP o If prices double, but output stays the same, nominal GDP will double, but real GDP wont change o GDP deflator will equal 200, indicating a doubling of the price level o In essence, the GDP deflator accounts for changes in prices without reflecting changes in quantities CPI o Measure prices directly o Thousands of different prices o BLS calculates a market basket o How to: (Cost of basket) year 2 x 100 = CPI (Cost of basket) year 1 o Other indexes: o PPI Calculating the rate of change of prices (inflation) o GDP deflator GDP deflator year 2 GDP deflator year 1 x 100 GDP deflator year 1 o CPI o CPI year 2 CPI year 1 x 100 = inflation rate CPI year 1- Unemployment o How to measure: Status Employed Unemployed Not in the labor force o Statistics...
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macro econ cumulative review - Macroeconomics Cumulative...

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