Economics Chapter 19 Study Guide

Economics Chapter 19 Study Guide - Economics Chapter 19...

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Economics Chapter 19 Study Guide 1) Introduction a) Microeconomics is the study of how households and firms make choices, how they interact in markets and how the government attempts to influence their choices. b) Macroeconomics is the study of the economy as a whole, including topics such as inflation, unemployment and economic growth. c) Business cycle : Alternating periods of economic expansion and economic recession. d) Expansion is the period of a business cycle during which total production and total employment are increasing. e) Recession is the period of a business cycle during which total production and total employment re decreasing. f) Economic growth is the ability of an economy to produce increasing quantities of goods and services. i) Macroeconomics determines the rate of economic growth within a country and the reasons why growth rates differ so greatly. g) Macroeconomics also analyzes what determines the total level of employment in an economy. h) Inflation rate is the percentage increase in the price level form one ear to the next i) Macroeconomic analysis provides information that consumers and firms need in order to understand current economic conditions and to help predict future conditions. 2) Gross Domestic Product Measures Total Production a) Measuring Total Production: Gross Domestic Product i) Gross Domestic Product, GDP , is the market value of all final goods and services produced in a country during a period of time. ii) GDP is the market value of all final goods and services produced in a country during a period of time. iii) GDP is Measured Using Market Values, not Quantities (1) We measure production by taking the value in dollar terms of all the goods and services produced. iv) GDP Includes only the Market Value of Final Goods (1) In measuring GDP, we include only the value of final goods a services. (a) Final good or service is a good or service purchased by a final user. (i) Ex: hamburger purchased by consumer (2) Intermediate good or service: A good or service that is an input into another good or service, such as a tire on a truck. v) GDP Includes only Current Production (1) GDP includes only production that takes place during the indicated time period. b) Production, Income, and the Circular Flow Diagram i) When we measure the value of total production in the economy by calculating
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GDP, we are simultaneously measuring the value of total income. (1) Ex: when we buy a $250 ipod all the money goes towards someone’s
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This note was uploaded on 04/09/2008 for the course ECON 001 taught by Professor Caseyquinn during the Spring '08 term at Lehigh University .

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Economics Chapter 19 Study Guide - Economics Chapter 19...

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