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Macroeconomics: GDP & Classical Theory (Part I)

by: Sarah Rahbek

Macroeconomics: GDP & Classical Theory (Part I) ECO 302-01

Marketplace > University of North Carolina - Greensboro > Economcs > ECO 302-01 > Macroeconomics GDP Classical Theory Part I
Sarah Rahbek
GPA 3.9
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These notes cover what we learned in weeks 1 and 2 of Intermediate Macroeconomic Theory. They go over GDP and the first part of the Classical Macroeconomic Theory.
Intermediate Macroeconomic Theory
Class Notes
Macroeconomics, Economics, Macro, GDP, Gross Domestic Product, economic theory, Classical Theory, Classical Economics, Classical Markets, Real GDP, nominal GDP




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This 3 page Class Notes was uploaded by Sarah Rahbek on Tuesday January 26, 2016. The Class Notes belongs to ECO 302-01 at University of North Carolina - Greensboro taught by in Winter 2016. Since its upload, it has received 68 views. For similar materials see Intermediate Macroeconomic Theory in Economcs at University of North Carolina - Greensboro.


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Date Created: 01/26/16
ECO 302 1/25/2016 Macroeconomics: GDP & Classical Theory (Part I) Stats of u.s. economy (quiz 1) GDP (Chapters 1 & 2) Overview: What is GDP, how is it measured, what are the formulas used, what is the difference between real and GDP: 17 Trillion; Going Up Unemployment: 5%; Going Down nominal GDP? Inflation Rate: ½%; Going Down Definition: GDP is defined as the measure GDP Growth Rate: 2%; Remaining Steady of all currently produced final goods and services.  Intermediate goods (goods used to produce other goods rather than being sold to final purchasers) are not included in GDP. - Example: Apples that are used to make apple pie are not included in GDP, only the final product (apple pie) is counted.  GDP is a flow, not a stock; it is a measurement over time (think of it as a measurement of the circular flow). Measuring GDP: There are three ways to go about measuring GDP (as mentioned on Quiz 2) 1) Production Approach: The total value of all final goods and services produced within the country over a given time GDP = Household Production + Business Production + Government Production 2) Expenditure Approach: The money spent to create all goods and services. GDP = Household Expenditures (Consumption) + Business Expenditures (Investment) + Government Expenditures + Net Foreign Expenditures 3) Income Approach: The money made from the sale of all goods and services. GDP = National Income – Net Income Received from Abroad + Depreciation of Capital + Statistical Discrepancy ECO 302 1/25/2016 Real vs Nominal GDP: Nominal GDP is the GDP measured in today’s terms; Real GDP has been adjusted for inflation using a given GDP Deflator GDP Deflator = Nominal GDP/ Real GDP  Real GDP is used to compare the GDP over a span of time; this comparison is commonly used to assess the progression in the standards of living Classical Macroeconomics (Chapter 3) History: In the 1700’s Classical Theory emerged as a revolution against mercantilism in an attempt to move the power from the wealthy to the working-class. Mercantilism: a policy that favored wealthy aristocrats and a large role for the government in the economy. Beliefs:  Promotes a lazzie-fare economy with little intervention from the government  2 Decision makers: Firms and Workers  2 Markets (perfect competition): Labor and Output  Closed System: Demand is determined by supply  Real measurements are important, not nominal  Money has no role in the creation of wealth; only an increase in purchasing power can increase wealth. Labor Market (Workers): N (Supply of Labor) = W/P (Wage/ Price Lvl) g(W/P) Purchasing Power A W/P Production Function (Firms): A N (Demand of Labor) = Y (Real Y= F ( K, N)K= Capital GDP) YA (Fixed) NA N (Quantity of Labor) N= Labor Slope = Marginal Production N ECO 302 1/25/2016 Endogenous (Known) vs Exogenous (Unknown) Variables Endogenous: W/P, N, Y Exogenous: K, F (Technology) Goods Market: A P AS (Aggregate Supply) YA Y (This amount is produced regardless of price)


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