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Midterm One Study Guide

by: Maddie Evans

Midterm One Study Guide EC202

Marketplace > University of Oregon > Economcs > EC202 > Midterm One Study Guide
Maddie Evans
GPA 3.6
Dr. Urbancic

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Hey everyone! Here are my notes for the Midterm One study guide for Macroeconomics with Urbancic. The notes include lecture notes, additional textbook info, as well as that from discussion. I also ...
Dr. Urbancic
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This 9 page Study Guide was uploaded by Maddie Evans on Thursday October 15, 2015. The Study Guide belongs to EC202 at University of Oregon taught by Dr. Urbancic in Summer 2015. Since its upload, it has received 218 views. For similar materials see Macroeconomics in Economcs at University of Oregon.


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Date Created: 10/15/15
Midterm One Study Guide Macroeconomics Lecture and Textbook Notes Info given from slides text and discussions Economics The study of how we use scarce resources that nature and the past have given us the branch of knowledge concerned with the production consumption and transfer of wealth Microeconomics The branch of economics that studies the behavior of individuals and rms in making decisions Macroeconomics The eld of economics that studies the behavior of the entire aggregate economy Positive amp Normative Statements gt Positive Statement 0 How the economy does work 0 Descriptive scienti c 0 Absolute statement of fact 0 Can be true or false 0 quotThe GDP of the United States is 68 trillionquot gt Normative Statements 0 How the economy should work 0 Statements of opinion 0 No way to know if something is true or not 0 quotThe best way to reduce unemployment is to decrease wagesquot Three Steps to Positive Economics gt Descriptive Economics 0 Data and statistics gathering information depending on what is available gt Economic Theory 0 Models making predictions with given information gt Empirical Economics 0 Natural experiments looking at the real world and seeing if models were correct 0 Experimental economics matching the data found with the models made The Economic Model gt Economic Model formal statement of theory gt Can be expressed in words equations or graphs or all three gt Describes or explains the relationships between variables ie price changes and in ation gt Makes assumptions 0 Ceteris Paribus quotall else being equalquot gt An abstraction or simpli cation of reality 0 Le Google Maps satellite and hybrid views being effective and useful in different ways depending on needs The Four Economic Policy Criteria gt Efficiency 0 Are outputs being produced at the lowest cost 0 Are they sustainable gt Equity o Is the distribution of income andor wealth fair gt Growth 0 How fast will the economy grow gt Stability 0 Can economic uctuationschanges be dampened or tamed The Roots of Macroeconomics gt Great Depression a period of severe economic contraction downturn and high unemployment rates it began in 1929 and lasted through the mid 1930 s gt Economists had no idea how to deal with Great Depression and were puzzled about the causes gt Modern economists still argue to this day about the origins causes and persistence of the Great Depression Keynes gt 1936 published the quotGeneral Theory of Employment Interest Moneyquot gt Believed governments could and should intervene in the economy and in uence the levels of output and employment during times of crisis gt He stated that during low demand the government could stimulate aggregate demand enough to lift the economy out of the recession and back onto it s feet Primary Concerns in Macroeconomics gt Output Growth o Is the number of goods and services that are produced by the economy increasing Can we increase it faster gt Unemployment 0 Why are certain people able to nd jobs but not others Discrimination Unlucky gt In ation and De ation o Are prices changing in a certain way or trend overall Can they be controlled De ning GDP gt Gross Domestic Product GDP is o The total market value of all nal goods and services that is produced within a given period by factors of production within a country Within a given period to avoid doublecounting Does not count the transfer of money that isn t involving the production of a good or service social security welfare donations Goods made outside our borders do not count gt Uses of GDP data 0 Helps us estimate living standards across the nations at a certain times GDP data usually gathered annually 0 Helps to measure economic growth or contraction recording booms or recessions 0 Shows us where we are in the business cycle gt Measuring Living Standards 0 Total GDP does not adjust for the population size 0 Measures by per capita Taking the total GDP and dividing it by the population This gives the average for the nation gt Output Equals Income 0 Output and income are synonymous in terms of total market value The Business Cycle gt Referring to shortrun uctuations in economic activity that causes the output to be above or below the average trend gt Long run trend can increase steadily over time with small troughs downturns and peaks booms gt Expansion is when output and employment rises causing the cycle to go from trough to peak otherwise known as a boom gt Contraction is when the output and employment rate falls causing the cycle to go from peak to trough otherwise called a recession or slump o A recession is not when the cycle returns to it s previous peak it is only when the economy starts in an upward trend 0 There is no way to determine when a recession has started 0 In general two consecutive quarters of the GDP decreasing is considered beginning of recession gt A depression is a prolonged and deep recession 0 No technical de nition depending on the scenario 0 quotThe Great Recessionquot was considered a depression from 2007 to 2008 Market Value gt Can t just count quantities must include prices as well 0 Ex In 2010 US produced 12 billion bushels of corn and 8 million cars quantity would say that we made more com but market value price for cars is much higher so we must base the GDP on prices gt To add dissimilar things measure the total value of production see above Goods and Services gt Goods 0 Tangibles Food clothing cars houses gt Services 0 Intangibles 0 Entertainment travel banking health care education gt Services are much more important now than 50 years ago gt Intermediate goods are those that rms or companies repackage or include within their own product that is later sold ie milk to Starbucks or engine part for Boeing airliner gt Final goods are those that are sold to the consumers or nal users 0 Only nal goods are included in the GDP can t count twice or will be doublecounting Why quotPurchased within a given periodquot gt Purchases of assets that don t involve production of goods or services don t count gt Purchases of land stocks and bonds don t count gt Fees that pay for services real estate agents do count Why quotBy factors of production located within a countryquot gt GNP Gross National Product is the same as GDP except 0 GNP includes goods and services made abroad by Americanowned companies 0 GNP excludes goods and services made in the US but owned by foreign countries 0 Ownership of multinational companies are more complicated GDP looks speci cally where production is occurring Methods for Calculating the GDP gt Expenditure Approach 0 Computes the GDP by measuring the total amount spent on all nal goods and services in a certain period gt Income Approach 0 Computes GDP by measuring income received by all factors of production income wages rents interests pro ts gt Valueadded Approach 0 Computes GDP by looking at value added at each step of production including intermediate goods Expenditure Approach Categories gt BEA Bureau of Economic Analysis is the US government agency that adds up GDP data also called national income accoun ng gt GDP Consumption Investment Government Spending NetExpo s gt Consumption 0 Personal consumption includes Durable goods Lasting a long time fridges dishwashers cars Affected by cyclical uctuations 0 Will buy less of these in times of downturnsrecessions Nondurable goods 0 Used up quickly and need replacement often food clothing 0 Not affected much by cyclical uctuations Services 0 Activity that doesn t involve production of physical things but still helpful and necessary medical services lawyer fees education gt Investment 0 Private spending on tools factories and equipment to produce future output 0 Purchases of business that adds to the inventory 0 Purchases of new housing units newly built homes by consumers 0 Does notinclude investing in stocks and bonds 0 Units produced but not sold are counted towards investments and not consumption 0 Relationship between total production and sales GDP Final sales Change in business inventory gt Government Purchases 0 Includes Government employee salaries New government buildings and new equipment National defense schools post offices public works projects 0 Does not include Transfer payments Welfare social security gt Net Exports 0 Difference between exports and imports can be positive ornegaUve EX IM NEl l Exports are sales to foreigners of American products Imports are American purchases from foreign manufacturers gt GDP is a onedimensional measure of the aggregated production of goods and services Nominal and Real GDP gt Nominal GDP is measured by current dollars gt Real GDP attempts to isolate the change in amount of actual goods and services produced in the changes from the nominal gure due to price changes 0 Prices are always uctuating and the Real GDP attempts to nd what the prices would be if they were steady gt GDP de ators measure the overall price level price index 0 We use this to get an overall estimate of the real GDP from the nominal GDP values Growth Rates gt Growth rates tell us how fast the economy is growing or falling using a percent change gt Formula F Comparing GDPs gt Countries with high prices or wages will seem overstated gt Countries with low prices or wages will seem understated gt Purchasing Power Parity PPP adjust the different prices by seeing how much currency is required to purchase the same good worldwide gt Big Mac Index attempts to show PPP by comparing Big Mac sandwiches prices across the countries to show price differences Shortcomings of GDP gt Nonmarket goods and services are not included in the GDP 0 Doing own services like washing dishes could otherwise be charged but will not count if done by self gt Goods and services that are in the underground economy are not counted 0 Hidden and uncounted transactions like drug and rearm sales 0 10 of GDP in United States gt Quality of life and environment are not included gt Leisure time is not included Unemplovment gt When people who would like to work can t nd a job gt Unemployment rate is the percentage of the labor force that is unemployed gt Unemployment rate is a key indicator to the health of the economy gt Unemployment results in 0 Lost incomes and production 0 Lost human capital gt Loss of unemployment can be devastating 0 Employment bene ts create a safety net but don t fully replace lost wages and not everyone can receive bene ts 0 Can be mentally physically and emotionally traumatic gt Prolonged unemployment permanently damages job prospects by destroying human capital gt Discouraged workers are those who have given up on employment opportunities based on previous experience with unfortunate luck usually resulting from prolonged unemployment and can be related to recessions Emblovment gt An employed person is someone who is 16 years or old who meets one of the conditions below 0 Who works for pay either for someone else or their own business for 1 or more hours per week 0 Works without pay for 15 or more hours per week in family business 0 Who has a job but temporarily absent or on leave with or without pay gt An unemployed person is someone 16 years or older who meets all three conditions below o Is not working o Is available for work 0 Has made speci c efforts to nd work during the last 4 weeks gt Someone who is in the workingage population who isn t looking for work at all is not in the labor force Retirees Stayathome parents those in jailinstitutionalized military personnel are not in the labor force V Types of Unemployment gt Structural Unemployment o Portion of unemployment that is due to changes in structure of economy that results in signi cant and possibly permanent loss ofjobs in certain industries Usually caused with technology advances or foreign competition Schumpeter calls process quotcreative destructionquot New industries created while old ones destroyed Requires retraining for affected workers Lasts longest typically longer than frictional unemployment Borders was great business until advancement of Amazon Kindle Textile industry has 83 less employees than 50 years ago 0 Most jobs moved to southern Asia gt Frictional Unemployment o Portion of unemployment that is due to time delays in matching available jobs and workers People don t like to take rst job available and rms don t like to hire rst applicants College graduates experience this often Typically lasts few months gt Cyclical Unemployment o Portion of unemployment linked to the country s business cycle and health of current economy During times of recessions or depressions unemployment the highest Typically a negative correlation between the unemployment rate and GDP


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