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Econ 261 Chapter 4 and 7 notes

by: Tori Bender

Econ 261 Chapter 4 and 7 notes Econ 261 macroeconomics

Tori Bender
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About this Document

Notes from lecture of chapters 4 and 7 in macroeconomics.
Manjuri Talukar
Class Notes
Macroeconomics, Econ




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This 4 page Class Notes was uploaded by Tori Bender on Sunday February 28, 2016. The Class Notes belongs to Econ 261 macroeconomics at Northern Illinois University taught by Manjuri Talukar in Spring 2016. Since its upload, it has received 18 views. For similar materials see Macroeconomics in Economcs at Northern Illinois University.


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Date Created: 02/28/16
Econ Ch 4 Consumer surplus: the marginal benefit from a good in excess of the price paid summed over the quantity consumed Total revenue is the price paid consumer surplus Producer surplus: the price of a good in excess of the marginal cost of producing it, summed over the quantity produced Total surplus: sum of consumer surplus and producer surplus PS PS Price Controls exist when the government imposes a price which is different form the equilibrium price. Different types of price control Price Ceiling: a government mandated maximum price above which legal trades can’t take place. The good cannot be sold at a price above this There is no point in having this above the equilibrium price. Price will never rise higher than equilibrium. There can be a shortage. Social point of view: consumer surplus. There wont be production past the supply line because there will be shortages so the quantity produced will cross the price ceiling and the supply line Dead weight loss is the total loss to society which is the loss of excess when you use price control ass opposed to meeting the equilibrium price. Price Floor: a govt mandated minimum price below which legal trades cant occur Ex)minimum wage Ch 7 Measuring Macroeconomic variables Gross domestic product (GDP) National Income (NI) Rate of unemployment Rate of inflation Excluded from GDP Intermediate sales Second hand sales Financial transactions Transfer payments: payments for which no services have been rendered Examples: unemployment benefits, welfare, social security, pensions Although intermediate goods are excluded from gdp, two things used in the production process, however, are included. 1)capital goods Manufactured means of productions(business plants, equipment purchases) Part of capital goods are included, included are the parts that are used up in the production process Business has a factory (10 million dollars to make) it was used for 20 years to make goods and services. Part of the factory will lose value each year (depreciation) Depriciation: capital goods that are used up or lose value Anything with depreciation expense in included in the GDP 2) Inventory change are included in GDP st, 2016 EX) Inventory of cars on January 1 is 4000 Production in 2016 is 15,000 cars Sales in 2016 is 10,000 Inventory at the end of the year is 9,000 Change in inventory is 9,000 minus 4,000 so 5,000. This reflects the unsold output which must be included in that year’s GDP. Difference between GDP (gross domestic product) and GNP (gross national product). GDP includes foreign resident’s earnings from home production (production in America) GDP excludes home resident’s earnings from abroad. GNP includes home resident’s earnings from abroad. GNP excludes foreign resident’s earnings from home production. Different ways to measure GDP 1)The expenditure method 2)The income method Components of GDP using the expenditure method Household expenditure is called consumption(C): the total purchase of durables, nondurables, and services by households Government spending (G): federal, state, and local government purchases. Investment spending(I): purchases (excluding bonds) of new capital goods by business plus spending on new construction (residential plus commercial) plus inventory reinvestment. Net exports: Exports subtracted by imports (X minus M) When X is equal to M there is trade balance When X is greater tha M or X minus M is greater than zero, trade surplus If X is less than M or X minus M is less than zero there is trade deficit GDP is equal to C plus I plus G plus X minus M Net investment is equal to gross investment minus depreciation expenses. Net expands the investment and makes more productive If the net investment is greater than zero, than the economy is a growing economy. Otherwise the investment will become negative. If net investment is equal to zero than the economy is stagnant (staying the same) If net investment is less than zero, than the economy is declining (no new investments) EX) Syria. People are leaving in mass migration due to civil war. GDP is the market value of all goods and services produced in a year Suppose an economy produces apples and oranges See note book!!!! Price index: a statistical device used to filter out the effects of price change. How to calculate price index : Price index in 2016 equals the nominal gdp in 2016 divided by the real gdp in 2016 mulitplied by 100 Means that compared to the base year (2015) prices in 2016 are 37.5 percent higher (percentthat was calculated as the price index) Price index for base year is equal to 100 ALWAYS NOMINAL GDP AND REAL GDP ARE THE SAME AS WELL


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