MacroEconomics Test #2
Terms
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- Equation for GDP
- C + I(sug)g + G + X(sub)n
- C
- the personl consumption expenditures which is all expendirures by households on durable consumer goods (automovile,etc) nondurable consumer goods (bread, etc) and consumer expenditures for services (of lawyers, etc.)
- I(sub)g
-
The Gross private domestic investments which includes all final purchases on the equiptment, machinery and tools by businesses enterprises, all construction ad changes in inventories. (the stuff in back).. they wont sell this right away but eventually will restock with this. additions to invintory is bad for GDP. when it is low it is good for GDP
GDP investment. it is the replacement capitol + aditional capitol. (I(sub)n +depreciation
Rules: I(sub)g will always be positive
I(sub)n can be negative (we see a decline sometimes) - depreciation
- the amount of capital that is used up over the course of a year
- G
-
government expeditures. (Federal, State, and local gets included)
Note: Fed gov spend 1/2 of G
There are two components. the first is expenditures for money and food tht government consumes in providing public services. the second is those for social capitol which are long lasting. - X(sub)n
- Trade transactions. exports(x)-imports(n) (can be and is frequently a negative number)
- Budget Deficiet
- we spend more than we take in GDP. (economic welfare): if we dont spend someones job is gone. However, GDP ONLY measures Numbers (and they stagger)
- GDP Vs GNP
-
GNP:stuff made by amerians (can be made in china)
GDP: stuff made in america - DI
- disposable income (C+S) comusmed and saved
- PI
- Disposable +income taxes (includes federal income tax, state income tax, and social security tax)
- NI
- the toal income of american, whether it was earned in the US or abroad.
- 3 things that a company can do with profit
-
1) retained earings
2)dividen
3)comperate income tax (CIT) - Retained earings
- (undistrivuted coporate profits) saves money and puts it bakc into the company
- Dividen
- comapnies payment to a shareholder when it earns a profit it pays stock holder
- NDP
- national Domestic Product (GDP-depreciation)
- In what ways are national income statistics useful?
- National income accounting measures the ecomony's overall performace. The statistics allow economists to assess the HEALTH of the economy by comparing levels of production at regular intervals. it also enables them to track the overall course that the ecomony has take (whether it has grown, been constant, or declined. Lastly, it allows economists to make policies that protect and improve the eocnomy's proformace
- Explain why an economy's out put ios also its income
- this is because income is the flow of moneyh generated by the productiojn of final goods and services. There are two sides to every sale. Stuff that is bought and stuff that is sold. output=income. we can add all money spent and it would be = to all money earned
- What is GDP? what is it important?
- GDP is the abbreviation of gross domestic product. it is the annual total output of goods and services (also known as aggregate output) "the total market value of all final goods and sevices produced in a given year" is another way of putting it. This is the primary measure of how the economy is doing. (the moneytary measure). GDP includes all putput produced by either citizen or fireign resources used with the country. Without GDP, economists would not have a way to compare relative values of goods and services produced in different years. Ex. comepare grades over years.. in us GDP is expressed in $ (monetary figure)
- What is the difference between an intermediate good and a final good? why do we exclude intermediate goods from GDP calculations?
- Intermediate goods are those purchased for resale, processing, or manufactoring. final goods are those that are to be used by the consumer and not anything else. Intermediate goods are exluded because the final goods already includes the value of the intermediate goods. thus if they were used, those goods would be counted twice resulting in multiple counting. ex. paper in books
- what transactions are excluded from GDP? why?
- monitary transactions are excluded from GDP because although some involve final goods, others do not. these transactions are called nonproduction transactions there are plenty of finacncial transctions (which includes public transfer payments, private transfer payments, stock market transactions and secondhand sales
- public transfer payments
- are social security payment, welfare payments and veterans payments that gets paid directly to the household. these are not included because the recipients dont contrivute to production in return thus that would be overstating the years output
- Private transfer payments
- are payments made as gifts. they produce no output and just transfer funds from one person to another and consequently does not enter GDP.
- Stock market transcations
- bying and selling of stocks and bonds. stock market transactions create production and are subsequently not added to GDP. payments for serives of a secutiry broker are included because they contrivute to current output.
- Second hand sales
- not included in GDP because they dont contrivute to current production because it is not oging through the market.. has already been "bought". for example.. do it yourself stuff (building your own house)
- IPO
- initial public offering... stock up for first time.. it included in GDP
- Measure using GDP
- as gdp rises, economy grows. This does not mean that the individual is better off, just the country as a hole. Does not inlude job satisfaction or leasure time specifically we measure economic growth in REAL gdp not nominal gdp
- real gdp
- gdp with price level changes taken into account
- nominal
- gdp doesnt take price changes into account
- exconmic growth
-
a rise in gdp(sub)r over time
a rise in gdp(sub)r per capita - Goals for people in market
-
1)keep up with everyone else
2)stay on top
3)rising income and wages... Rise in S.O.L. and opportunity and a decrease in burden scarcity
4)good growth is 3 to 5% per year - sources of growth (why)
-
-rise in the factors of productions (1/3)
-production (2/3) - productivity:
- what we do with the existing stuff we adapt technology to be more productive
- what makes us productive
-
-better work envirment/savety
-healthcare
-education
-rise in the motivation of workers
-better organized production methods
-more efficienty industries
-useing resources efficiently and allocating them - if you grow too fast...
- its hard to sustain
- (see pic in notes)phases of cycle of growth
- peak, trough, recession, and recovery
- peak
- business activity reaches a maximum: full poroductivity. we can produce no more than what we have
- recession
- period of decline... two consequative quaters of gdp
- depression
- prolonged recession
- trough
- economy bottoms out
- recovery
- getting back to where we were
- expansion
- goes beyond provious peak
- when economy is in recession...
- we see a decline in gross investment... we arent replacing things. it would mean moving from on the curve to inside the curve. (see notes)
- U
- unemployment
- unemployment rate
-
1)total population-nonworkers(those under 16, stay at home rents, institutionlized, retired, ppl in school and people not working and not looking for work) =labor force
2)labor force-unemployment divided by labor force x by 100 =those employed (thus subtract from 100 - good unemployement
- 4-6% acceptable.
- 4 types of unemployment
- frictional, structural, seasonal, and cyclical
- frictional unemployment
- those between jobs (ex. college grad)
- structural unemployment
- when ppls skills yet obselete move from labor intensive to capital intensive. ex. tv repair men... not a bad thing.. sign of econ that can adapt quickly
- seasonal unemployment
- ex. ski patrol, grape pickers, rafting guide, life guard, etc
- cyclical
- (those layed off) this is BAD... great workers who dont have a job because of a decline in econ activity
- Full employment
- occurs when cyclical U is 0. S+F+ST is about 5% unemployment (doesnt include CU)
- oaken
- thought there was relationship between GDP and unemployment so he treid to caluclate cost of U
- oakens law
- for every 1% that unemploymentis greater than the natural rate there is a 2% cost in GDP
-
ex. Natural rate (FE)=5%
GDP=200b dollars
U=8% - 8-5 is 3% more unemployment than we should have... times 2 is 6% less GDP than we should have. 6% of 200b is 12b.. so GDP could be 212B
- different countries
- have diferenty natural rate of U
- unemployment bennifits
- help with soft landing when jobs are lost. US 26 weeks to collect bennifits...
- how does U vary?
- with age, gender, and race
- National income accounting
- measures the economys overall performace. it does for economy as a whoile what private accounting does for the individual firm or for the individual household
- Net investment
- includes only investment in the form of added capital. the amount of capital that is used over the course of the year
- net investment=
- gross investment-depreciation
- disinvesting
- useing up more capital than it is producing
- adjustments
-
1)compensation of employees.
2)rents
3)interest
4)Proprietors' income - interest
- (money paid by private businesses to the suppliers of money capital)
- Proprietors' income
-
(consists of net income of sole proprietorships, partnerships, and unicorperated buinesses)
5) - interect buiness taxes
- general sales taxes , etc.
- consumption of fixed capital
- alloance for capital that hads ben consumed in producing the years GDP. .. par that is used to pay for the ultimate replacement of capital goods
- corporate profits
- coporate profits (corperate income taxes-those taxes are levied on corporations net earning and flow to gov; dividends-part of the corporate profits that are paid to the corporate stockholders and flow flow to households; undistrivuted corporate profits-monies save by corportions to be invested later in new plants and equptment.)