Econ 1 Notes - Week 6
Econ 1 Notes - Week 6 Econ 1
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This 2 page Class Notes was uploaded by Elena Stacy on Saturday August 6, 2016. The Class Notes belongs to Econ 1 at University of California Berkeley taught by Monica Deza in Summer 2016. Since its upload, it has received 12 views. For similar materials see Introduction to Economics in Economcs at University of California Berkeley.
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Date Created: 08/06/16
Macro Notes - CPI (consumer price index) o Knowing the price doesn’t tell you anything unless you understand it in terms of consumer purchasing power CPI adjusts consumer prices for inflation • Nominal vs. Real anything (income, GDP, wages, etc.) - GDP (Gross Domestic Product) o Value of final goods and services produced domestically - GNP (Gross National Product) o Value of final goods and services produced by firms ownedby US citizens Determinants of Consumption: - Spending o YD = Disposable Income = Y + TR – TA Increase in disposable income will increase consumption o Wealth = Assets – Liability Wealth increases, then consumption increases o Interest Rates Borrower: rates increase, consumption will decrease Saver: rates increase, consumption will increase o Credit Credit available increases, consumption increases o Expectations Expectations increase, consumptions increase Determinants of Investment: o Interest rates Rates increase, investments decrease o Expected revenue Expectations increase, investments increase o Price of capital Price goes up, investment goes down o Cost of using capital Cost goes up, investment goes down - Expected return > interest rates o Then firms will buy capital Determinants of Govt. Spending: - Completely exogenous in this class o Assume that it does not change o Denoted as “G” Determinants of Net Exports: - NX = Exports – imports o Income abroad Income abroad goes up, exports increase F I (income, foreign) o Exchange rates Exchange rates go up (price of US dollar), exports go down o Income in the US Income in US goes up, imports go up o Price of foreign currency Price of foreign currency goes up, imports go down Spending = Consumption + Investments + Government Spending + Net Exports= C + I + G + NX = AD = AE - This spending is called “Aggregate demand” or “Aggregate expenditures” (AD or AE) o In equilibrium GDP = AD = AE • Production = Spending Y = AD • Income = Spending o AD = AE = f (YD) o AD = d + BYD
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