Chapter 5 Study Guide
Chapter 5 Study Guide Econ 2-01
Popular in Intro to Macroeconomic
Popular in Economcs
verified elite notetaker
This 6 page Study Guide was uploaded by Nolan Shapiro on Tuesday October 13, 2015. The Study Guide belongs to Econ 2-01 at University of California - Santa Cruz taught by Aaron Meininger in Summer 2015. Since its upload, it has received 69 views. For similar materials see Intro to Macroeconomic in Economcs at University of California - Santa Cruz.
Reviews for Chapter 5 Study Guide
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 10/13/15
Lecture Notes for Chapter 5 Chapter 5 THU MSI Crown 201 office hours 1012 TUTH KEY IDEAS 1 Macroeconomics is the study of aggregate economic activity 2 National income accounting is a framework for calculating GDp which is measure of aggregate economic output 3 GDP can be measure in three different ways and in principle these methods should all yield the same answer productionexpenditureincome 4 GDP has limitations as a measure of economic activity and as a measure of economic wellbeing 5 Economists use price indexes to measure the rate of inflation and to distinguish normal GDP from real GDP which holds prices fixed Macroecon is the study of economic aggregates and economywide phenomena In particular macroeconomics asks the following questions What is income per capita How do we measure the differences in income per capita How large are differences in income per capita What causes differences in income per capita Income per capita The average income per person Income per capita divide nations income by of people Income per capita in the United States Differences in income per capita are caused by institutional differences socalled economic rules of the game and political policies that impact them Differences in income per capita can either narrow or widen over time Why does economic growth sometimes slow or even go negative population loss natural disaster war etc What is a recession 2 quarters or more of negative economic growth gt causes stock and housing crash Great recession in 08 In the short run economic growth slows down or even becomes negative when aggregate spending decreases What is the unemployment rate and why does it rise during recessions Current 51 whether figure is good or bad depends on if you have a job but historically low 3 during Clinton is best we39ve had People start spending less and save more and a reaction from jobs cutting jobs cause this lack of demand gt business cycle Why were the Great Recession of 0709 and the Great Depression of 19291932 so severe lost of jobsgt lost of moneygt poverty Depression 2 continual Recession periods 1 year The unemployment rate is defined as the ratio of workers without a job who are actively seeking one divided by the labor force National income accounts A Measure of the level of aggregate economic activity in a country National lnoc Aggregate economic activity in a country can be measure in three ways 0 production expenditure 0 income Each are used to measure GDP GDP The market value of the final goods and services produced within the borders of a particular time period usually a year A foreign country39s company who produces in the US is also in the GDP GNP The market value of all final goods produced by American companies regardless of location of a particular time period usually a year Production Approach Productionbased accounting sums up each firm39s value added which is the firm39s sales revenue minus the firm39s purchases of intermediate products from other firm Expenditure Approach Expenditurebased accounting sums up the purchases of goods and services by different groups or categories There are five main categories 1 Consumption goods and consumption services bought by domestic households C New physical capital investment bought by domestic households and firms i Government expenditures on goods and services G Exports of goods and services produced domestically and sold abroad X lMports of goo 91 Income approach Incomebased accounting sums up payments or income received by labor and the owners of physical or financial capital Aggregate Accounting Identity Y GDP quotprod GDP Aexp GDP quotincome National Income Accounting Identity Y C I G X M Expenditure 0 consumption l Investment land labor capital G Government purchases X Exports MImports EvidenceBased Economics Example 0 IN the UNited States what is the total market value of annual economic production Answer The bureau of Economic Activity estimated in 2013 that US GDP wa 168 trillion or about 55000 per person 0 In 2013 how was the GDP divided into the expenditure components Gross domestic product 168 Consumption 115 Investment 27 Government Expenditure 31 Exports 23 Imports 28 0 Have US expenditure shares fluctuated or remained constant over time Answer Remain constant GDP and national income accounting is a useful system taking the temperature of the economy GDP omits depreciation of the physical capital stock and resources GDP excludes home production of cleaning cooking and child care done in the household nonprofessional services GDP does not capture transactions conducted in the underground economy GDP does not count negative externalities such as pollution noise and crime GDP does not include production by US workers and US capital abroad An increase in GDP will record both increases in actual production and income and increase in the price of those goods and services We therefore need to distinguish between nominal GDP and real GDP Nominal GDP The total value of production using current market prices to determine the value of each unit that is produced Real GDP GDp deflator one way we measure inflation Divide real GDP for two different years and times by 100 Midterm Fri Simple calculators only MC matching and short answer Consumer Price Index CPI The price level of a particular basket of consumer goods and services CPI cost of consumer basket in current year cost of consumer basket in base year The GDP deflator includes things not purchaed by households The CPI includes imports Housingrelated expenditures like shelter and utility bills have a large weight in the CPI GDP and the price level are more often quoted in growth rates A growth rate is defined as a percentage change newoldold Inflation rate The percentage change in a price index We can use a price index 0 make meaningful comparisons across time in 1909 then US president William Howard Taft was paid 75000 In 2013 current US president Barack Obama was paid 400000 Book notes for Chapter 5 51 Macroeconomic Questions 0 Income per capita is the income per person Calculated by dividing a nation s aggregate income by the number of people in the country Recessions are periods at least 2 quarters in which aggregate economic output falls 0 A worker is officially unemployed if he or she does not have a job has actively looked for work in the prior four weeks and is currently available for work 0 The unemployment rate is the fraction of the labor force that is unemployed National income accounts measure the level of aggregate economic activity in a country 0 National Income and Product Accounts NIPA official name for the US 52 National Income Accounts ProductionExpenditurelncome Production 0 To determine the market value of production multiply the quantity produced by the market price 0 GDP is the market value of the final goods and services produced within the borders of a country during a particular period of time 0 GDP is a measure of production not a measure of sales to consumers Expenditure Including both household expenditures and firm inventory expenditures will equal the same as the production Income 0 Every dollar of revenue must either go to some worker or be retained by the firm 0 So the total value of revenue must equal the total value of income received by workers and owners 0 Two variables are related by an identity when the two variables are defined in a way that makes them mathematically identical 0 Productionexpenditureincome Factors of production are the inputs to the production process come in two key forms capital and labor Firmsgt households Production of goods and services and Income paid to factors of production Households gt Firms Expenditures on goods and services and factors of production Production represents the goods and services that are produced by firms Expenditure represents the payments for goods and services Income represents the payments that are mode from firms to households to compensate the households for the use of their physical capital and labor Factors of production represent the productive resources that are owned by households and used by firms in the production process Production based accounts sum up the market value that is added by each domestic firm in the production process Production based accounting measure each firm s value added which is the firm s sales revenue minus the firm s purchases of intermediate products from other firms Expenditure based national income account measure the purchases of goods and services produced in the domestic economy These purchases are five categories 0 Consumption is the market value of consumption goods and consumption services that are bought by domestic households ex frisbees 0 Investment is the market value of new physical capital that is bought by domestic households and domestic firms purchases of new physical capital not stocks and bonds ex tesla s new auto plant 0 Government expenditure is the market value of government purchases of goods and services excludes transfer payments social security and interest paid on government debt ex new road 0 Exports are the market value of all domestically produced goods and services that are purchased by households firms and governments in foreign countries 0 Imports are the market value of all foreignproduced goods and services that are sold to domestic households firms and government 0 National income accounting identity y cigxm 53 What isn t measured by GDP Physical capital depreciation Home production underground economy GNP Leisure 54 Real v Nominal Nominal GDP is the total value of production final goods and services using current market prices to determine the value of each unit that is produced Real GDP is the total value of production using market prices from a specific base year to determine the value of each unit that is produced Real GDP growth is the growth rate of real GDP GDP deflator is the ratio of nominal GDP to real GDP times 100 It is a measure of how prices of goods and services produced in the country have risen since the base year The consumer price index is the ratio of the cost of buying basket of goods in one year divided by the cost of the same basket of goods using base year prices times 100 The rate of increase in prices is the inflation rate It is calculated as the year overyear percentage increase in a price index
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'