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Macroeconomics 3/23/2016

by: amber weiss

Macroeconomics 3/23/2016 Economics 111

amber weiss
GPA 3.7

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About this Document

This is what we covered in class on Wednesday March 23, 2016
Mary Anne Pettit
Class Notes
25 ?




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This 2 page Class Notes was uploaded by amber weiss on Wednesday March 23, 2016. The Class Notes belongs to Economics 111 at Southern Illinois University Edwardsville taught by Mary Anne Pettit in Spring 2016. Since its upload, it has received 11 views. For similar materials see Macroeconomics in Economcs at Southern Illinois University Edwardsville.


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Date Created: 03/23/16
Macroeconomics 3/23/2016 6. Expectations Expectations impact consumers’ confidence (how they feel) that may or may not be reflected in A change in real spending consumption {lay off? Foreclosure? Terrorist attack?} is what Influences them.  More components of GDP: Investment, Government Spending, and Exports  Investment Spending - Investment spending: 18% pf total output - Spending by businesses on: 1. New capital: tools, equipment, machinery, factories  Business fixed investment  Nonresidential Fixed Investment  These 2 terms mean the same thing as capital The biggest component of investment: 75% The biggest component of investment spending so, 75% of the 18% 2. Residential investment = new home 25%  4% subprime market = Shaky credit  4% of 25% of 18% 3. Changes in inventory = 3%  Still count the stuff people didn’t buy  Increase in inventory are ADD to GDP  Decrease in inventory are subtracted  Nature of investment spending - Investment spending is the GDP component that fluctuates (moves up or down) the most  Sensitive, moody  Consumer spending = stable(more) – linked to (generally) more stable determinants  Consumer spending- biggest, income is biggest claim to fame  Determinants of investment spending 1) Expectations- changes by businesses  Expected rate of return on the investment spending will the new the new equipment, building, tool; pay off? Long-run? Short-run?  Expected future sales (demand) and profit 2) Interest rates- figure into many formula  Interest rates are PRICES—NOT JUST 1 RATE  Rates on long-term debt usually higher  Higher rate rejects more risk- why more? {Divorce, children, disaster, sick, etc…)  Rates different but tend to move together  Higher interest rates- less investment  Lower rates- stimulate more investment 3) Technology and innovation  Advances spur investment spending  More efficient ways of communicating, producing, and distributing  New products require new equipment


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