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VIRGINIA TECH / Economics / ECON 103 / What is the difference between distinguish current and constant value?

What is the difference between distinguish current and constant value?

What is the difference between distinguish current and constant value?

Description

School: Virginia Polytechnic Institute and State University
Department: Economics
Course: Macrroeconomics
Term: Fall 2016
Tags: Macroeconomics
Cost: 50
Name: Unit 2 Study Guide
Description: This study guide covers the basic topics that Mike stated would be in the unit 2 exam. ** The person who advised FDR in the New Deal is actually John Maynard Keynes. Mike clarified that in class on Friday.
Uploaded: 10/07/2016
5 Pages 13 Views 7 Unlocks
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Macroeconomics Unit 2 Study Guide


What is the difference between distinguish current and constant value?



Test date: 10/10/16

On the test: 33 questions

o 3 Q’s: double counting

o 4 Q’s: current vs. constant GNP

o 2 Q’s: circular flow of income

o 2 Q’s: what’s in the GNP

o 3 Q’s: types of unemployment

o 4 Q’s: unemployment graph

o 1 Q: multiplier

o 1 Q: who advised FDR in the New Deal?

o 1 Q: Keynesian/ classic

o 2 Q’s: types of income

o 10 Q’s: GNP

o Who is helped/hurt by inflation/deflation

Double counting (3): 

Double counting – use value added approach

Sector

Sales

Value Added

Wheat farmer

$50,000

50,000 (assuming 0  costs)

Miller

80,000

30,000

Baker

100,000

20,000

Retail grocer

160,000

60,000

Total

390,000

160,000


What is the circular flow of income?



Sum of added values = total

Current vs. constant GNP (4): 

Inflation – distinguish current vs. constant value (/nominal vs. real)

2004 – assume as base year

- 100 tractors produced and sold for $10,000 each

 $1,000,000 contribution to GNP

2005:

- 120 identical tractors produced and sold for $13,000 each  (120)*(13,000) = $1,560,000 current/nominal GNP

2004 -  (120)*(10,000) = $1,200,000 constant/real GNPWe also discuss several other topics like lowercase m in chemistry
Don't forget about the age old question of physics 1120

1,560,000

1,200,000=13,000

10,000 = 1.3 30% rate of inflation*

∙ Base year – stick with it for 18 years (as constant GNP)

∙    Inflation = increase in prices


How can you calculate gnp?



Don't forget about the age old question of 3. http //chemistry.about.com/od/acidsbases/a/acidbaseformula.htm

Circular flow of income (2): 

∙ Circular flow of income

o Households sell labor  paid wages

o Pay taxes  government provides police/fire protection

o Businesses pay taxes  get services

∙ Circular flow of income: we can track money in both directions (sell to each other, buy  from each other)

o *spending = earnings

What’s in the GNP (2): 

∙ GNP = C + I + G + (x – M) = Y

∙ Y = consumption + investors + government + (exports – imports)

∙ GNP = Gross National Product = sum value of all goods and services produced in a  country in a year, whether or not it has been sold at the final retail level

∙ Underemployment  GNP not as big as it could be

Types of unemployment (3):  

∙ Types of unemployment

o Frictional = people between jobs; recent college graduates; switching companies o Cyclical = unemployed due to business cycle:  weather, seasonal, holidays,  construction

o Structural = skills no longer demanded by the structure of the economy;  typewriter repairman; economy does not have the job anymore

o Natural = minimum rate that will always exist; include people who want a job, but can’t get one If you want to learn more check out dm fiu

∙ *test: as citizens, we should be most concerned with structural unemployment o Example: if natural rate is 3%, then full employment is 97% (if we keep it down  to natural rate)

Unemployment graph (4):  

a. Wage rate is flexible b. wage rate is  flexible

∙ Every point on the supply curve tells how many people are  willing to work for that wage or salary

∙ How many are willing to work at $10/hour? = 94M

o Actual # working = 87M

∙ Flexible wages  only voluntary unemployment

Multiplier (1):  

∙ Multiplier effect: federal government needs to add just enough $ ∙ MPC = marginal propensity to consume

o *we are spending $0.56 (MPC) on every dollar for American made goods and services (products)

∙ MPW = marginal propensity to withdraw Don't forget about the age old question of arrector pili muscle definition anatomy

∙ (for previous problem) M = multiplier =  = 2.27

1

MPW =  

1

1−MPC =  

1

0.44

∙ G2 = G1 +  

GAP

M = 4.50B +  

200 B

2.27 = $538.11B

Who advised FDR in the New Deal (1):  John Maynard Keynes

Keynesian / Classical (1): Keynesian Solution: 1

M =  

0.43 = 2.33

G2 = G1 + GAP

M = 300B +

Classical Solution:

107 B

2.33 = 300B + 45.92 =$345.92B

Yf = 2,200B = 900B + n2 * (2,200B)

1,300B = n2 * (2,200B)

n2 = 0.59 = MPC2

Recall: n1 = 0.57 = 0.7 * 0.82

n2 = 0.59 = 0.7 * (x) where x = 1 - TR2 Don't forget about the age old question of what predicts conformity

x = 0.84

∴ TR2 = 1 - .84 = 0.16 = 16% (new tax rate) 

Types of income (2):  

∙ Y = gross (before taxes taken out)

∙ Yd = disposable (after taxes taken out)

∙ Yde = discretionary (after you pay mandatory bills)

∙ Ye = equilibrium (suppliers produce the exact amount of 

services that consumers want to buy

∙ Yf = full employment (how much income all Americans 

would earn this year if everyone who wants a job has a job)

GNP (10):  

∙ GNP = Gross National Product = sum value of all goods and services produced in a  country in a year, whether or not it has been sold at the final retail level ∙ GNP is a measure of production (even the things not sold)

o Involves money changing hands

o Investors look at sectors of GNP

o Does not reflect quality of products

o If we produce junk, and someone buys it, GNP still goes up

o Money has to change hands legally

o NOT in GNP: quality of product, volunteer work, bartering

∙ GNP = C + I + G + (x – M) = Y

Who is helped / hurt by inflation / deflation?  

∙ Inflation: major problem

o Affects everyone

o Business owners benefit

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