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9/23/16 Notes

by: Lori Holte
Lori Holte
Virginia Tech

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GNP, income, and employment.
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This 2 page Class Notes was uploaded by Lori Holte on Sunday October 2, 2016. The Class Notes belongs to at Virginia Polytechnic Institute and State University taught by in Fall 2016. Since its upload, it has received 72 views.


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Date Created: 10/02/16
Macroeconomics Unit 2 Notes 9/23/13   Best predictor of how much consumers will spend = current disposable income (after tax)  Disposable income = take­home pay after tax  Other predictors: o Family size o Inflation o Age o Location ($$$) o *expected future income*  Milton freeman and Franco Modigliani argued the minority opinion: the best predictor of  current consumer spending is expected future income (*test)  Y = C + I + G + (X – M) = DAE  Where: o Consumption = f(Y ) d o Imports = ­f(Y )d o Y  d (1 – tax rate) * Y  Endogenous =factors with values that are influenced by other factors in the model/system  Exogenous = factors with values that are influenced outside the system  Full employment: Y =fhow much money all Americans would earn if all Americans who  wanted a job had a job  Production  jobs  income  spending  production  etc.   Production, jobs, income rise together  Employment = people 16 years or older having a job or wanting a job  Unemployed = wants a job, but currently does not have one  Underemployment = having a job below your skills  Types of unemployment o Frictional = people between jobs; recent college graduates; switching companies o Cyclical = unemployed due to business cycle:  weather, seasonal, holidays,  construction o Structural = skills no longer demanded by the structure of the economy;  typewriter repairman; economy does not have the job anymore o Natural = minimum rate that will always exist; include people who want a job, but can’t get one  *test: as citizens, we should be most concerned with structural unemployment o Example: if natural rate is 3%, then full employment is 97% (if we keep it down  to natural rate)  If you don’t want a job, then you are not unemployment   Underemployment  GNP not as big as it could be  Equilibrium income = the level of income when production equals spending  Founding fathers: unlimited spending power to federal government (exogenous)


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