Macroeconomics ECON 2105
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This 4 page Study Guide was uploaded by Alikhan Ladhani on Thursday March 3, 2016. The Study Guide belongs to ECON 2105 at Georgia State University taught by Brian A. Hunt in Spring 2016. Since its upload, it has received 46 views. For similar materials see Principles of macroeconomics in Economcs at Georgia State University.
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Date Created: 03/03/16
• GDP= sum of consumption + investment + Gov. spending + net export (export- imports) • GDP deflator is a measure of the price level that includes prices of the final goods and services included in GDP. ▯▯▯▯▯▯▯ ▯▯▯ • ???????????? ???????????????????????????????? = ???? 100 ▯▯▯▯ ▯▯▯ • To compute real GDP, we extract the current prices of goods and services and then insert prices from a common time period, or base period, that has been agreed upon. • 1. Filter out the current prices from the nominal GDP data. We do this by dividing nominal GDP by the price level from the time period in which the GDP was produced. • 2. Put in the constant prices from the base period. Now we just multiply by the price level (100) from the base period. ▯▯▯▯▯▯▯ ▯▯▯ • Equation for real GDP= ▯▯▯▯▯ ▯▯▯▯▯ (▯▯▯ ▯▯▯▯▯▯▯▯) ???? 100 • Nominal GDP- current price times the amount of units • Real gdp- is calculated by new units times old price • Growth Rate ▯▯▯ ▯▯▯▯ ▯ • Nominal GDP growth Rate ????▯(%) = ???? 100 ▯▯▯ ▯ • shortcomings of GDP • non market goods o goods and services that are not sold are not counted towards GDP § ex washing car, cutting grass are services produced but not counted in GDPs • underground economy (black market) o not reported to Gov. so it is not taxed o legal- tips contractors build additions to homes landscapers o illegal- selling of drugs o underground economy are not directly measurable because the income is not reported. Therefore, they are not included in official measures of GDP. • Americas shadow economy o underground transactions for services ranging from moving companies to sales of makeup, food stamps, and fake designer handbags. • Quality of the environment o GDP only measures the final amount of goods and services produced in a given period, it cannot distinguish how those goods and services are produced. § Ex two economy with same GDP one relies on clean energy and the other has lax environmental standard both economy enjoy the same things but the well being of the second economy lead to air and water pollution and health problems o so using GDP to infer that both places are equally desirable would be inaccurate. • Leisure time o GDP only counts market activity, it fails to capture how long laborers work to produce goods and services o this is a problem of comparison of GDP across countries because they don’t account for the extra time available to workers with less hours worked o • per capita GDP= country’s total GDP/ population • economic contractions are also called recession and are periods when economic growth is slower than usual • Loanable funds market • Loanable funds market- market where savers supply funds for loans to borrowers • Includes places like stock exchanges, investments banks, mutual fund firms and commercial banks • The role of the loanable funds marker • o As people save money they will put it in to banks, bonds or stocks and with the money that is compiled it will be given out to other people as loans to the borrowers • o Company borrows money to pay workers and buy resources then produce the goods and then what they make from the product will be used to pay back the borrowed money and pay workers • Interest rate- a price of loanable funds, quoted as a percentage of the original loan amount • o As more money is saved by the bank the interest will go down but interest will go up if there is not enough money in the bank • equilibrium • Equilibrium in the loanable funds market occurs at the interest rate where the plans of savers match the plans of borrowers • Equilibrium occurs when o Savings = investments • Investments require savings because every dollar borrowed requires a dollar saved • A decline in investor confidence • When the economy slows, firms will reduce investment because they expect reduced sales in the future: this reflects a decline in investor confidence • What Factors Shift the Supply of Loanable Funds • Income and wealth o Increase in income produce increase in savings o Less income people save less § These shift the loanable funds supply curve o Historically, U.S. financial markets have offered relatively greater returns than markets in other countries. o US financial markets are considered less risky than the global market • Time preferences • Consumption smoothing • o o o o o • From questions from smart work • Suppose that U.S. citizens suddenly become wealthier. As a result, the supply for loanable funds increases and borrowers issue more stocks and bonds to finance capital improvements. • When baby boomers retire savings will decrease which will cause loanable funds to decrease which will cause interest rates to rise • Firms and governments are on the demand side and households are on the supply side of loanable funds market • When the capital becomes more productive the equilibrium intrest rate and amount invested would both increase • An increase in capital productivity will lead to an increase in both equilibrium investment and equilibrium interest rate • Consumption smoothing occurs when people borrow and save to smooth consumption over their lifetime. • The savings rate in the US in 1980 was lower than now
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