Econ in a Global Society
Econ in a Global Society ECON 2105
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This 5 page Class Notes was uploaded by Gunner Sauer on Monday October 12, 2015. The Class Notes belongs to ECON 2105 at Georgia Southern University taught by William Amponsah in Fall. Since its upload, it has received 14 views. For similar materials see /class/222008/econ-2105-georgia-southern-university in Economcs at Georgia Southern University.
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Date Created: 10/12/15
EXAM 2 Chapter 5 gt Examples of questions that microeconomics seeks to answer How do consumers decide how much of each good to buy How do firms decide how much output to produce and what price to charge What determines the price and quantity of individual goods and services How do taxes on specific goods and services affect the allocation of resources Examples of questions that macroeconomics seeks to answer How do consumers decide how to divide their income between spending and saving What determines the total amount of employment and unemployment What determines the overall level of prices and the rate of inflation Why does the economy go through cycles where things are great for a few years like the late 90s and then lousy for a year or two like 2001 2002 When unemployment is high what can the government do to help A good way to judge how well someone is doing economically is to look at his or her income We can judge how well a country is doing economically by looking at the total income that everyone in the economy is earning GDP is our measure of the economy s total income often called national income GDP also measures total expenditure on the goods and services produced in the economy and the value of the economy s output production of goods and services Thus GDP is also referred to as output The equality of income and expenditure is an accounting identity not for example an equilibrium condition it must be true that income equals expenditure Factors of production are inputs like labor land capital and natural resources and including entrepreneurship Factor payments are payments to the factors of production e g wages rent The Cin ulaIFlow Diagram Revenue GDP Mann s pr Spending GDP 3 amp s V G a 5 gm SenIces bnugm Haqsehqldg Firms Factors uf Lenen and produenon caulta Markels for F lncume GDP Wage rem prom DP dwagram cuumrym 2 gwen permd uf Mme Grinds are vzmed at thew market pnces su All goods measured In Lhe some dons 2gda11ar5mth2 US GDP sthe market vzme uf zH nd goods menmes pruduced mm 2 muer m 2 gwen permd omme Fmdz goods intended for the end user Intermedmte goods used as components or mgred ents m the production of other goods goods used m the production GDP is the market value ofall final goods amp services produced within a country in a given period oftime GDP includes tangible goodslike DVDs mountain bikes beer And intangible services dry cleaning concerts cell phone service GDP includes currently produced goods not goods produced in the ast GDP measures the value of production that occurs Within a country s borders Whether done by its own citizens or by foreigners located there GDP Four components 1 Consumption C 2 Investment 1 3 overnment Purchases G 4 Net Exports N X YCIGNX H Consumption Exception purchases of new housing Note on housing costs For renters consumption includes rent payments For homeowners consumption includes the imputed rentalvalue ofthe house but not the purchase price or mortgage payments 2 Investment 7In the national income and product accounts a house is considered a piece ofcapitalthat is used to produce a flow of services 7 housing services 7When a consumer as a tenant rents a house or apartment the consumer is buying housing services These services are considered consumption so the price paid for these services 7 rent 7 is counted in the 39consumption component of GDP 7When someone buys a new house to live in she is both a producer and a consumer As a producer she has made an investment the purchase ofthe house that willproduce a service She is also the consumer of this service which is valued at the market rental rate for that type of house So the accounting conventions treat this situation as ifthe person is her own landlord and rents the house tofrom herself 3 Govemment Purchases 7G excludes transfer payments such as Social Security or unemployment insurance benefits They are not purchases of goods and services 4 Net Exports NX exports 7 imports Subtract off the import so that GDP ends up including the value of only domesticallyproduced goods and services Examples Jane spends 1200 on a computer to use in her editing business She got last year s model on sale for a great price from a local manufacturer AnswereJane s purchase causes investment for her own business to increase by 1200 However the computer is sold out of inventory so inventory investment falls by 1200 The two transactions cancel each other leaving aggregate investment and GDP unchanged General Motors builds 500 million Worth of cars but consumers only buy 470 million of them Answer Consumption rises by 470 million inventory investment rises by 30 million and GDP rises by 500 million Unsold output is countedin inventory investment Real versus Nominal GDP Nominal GDP values output using current prices It is not corrected for inflation Real GDP values output using the prices of a base year Real GDP is corrected for inflation Forthe base year Nominal GDP Real GDP Growth in nominal GDP is driven by growth in output AND by in ation Growth in real GDP is driven only by growth in output GDP Defotor n39omina G DP GDP deflator 100x realyGDP One way to measure the economy s in ation rate is to compute the percentage increase in the GDP de ator from one year to the next inflation in year 2 GDP deflator in year ZGDP deflator in year 1 GDP deflator in year 1 x100 Real GDP per capita is the main indicator of the average person s standard of living Does not take into Account The quality of the environment Leisure time Nonmarket activity such as the child care a parent provides his or her child at home An equitable distribution of income
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