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Unit-2 Macro Cram

Unit-2 Macro Cram. GDP, Unemployment, Inflation. Spending. Revenue. PRODUCT MARKET. PRODUCT MARKET. Goods and. Goods and. Goods. Goods. services. services. and services. and services. bought. bought. sold. sold. FIRMS. HOUSEHOLDS. HOUSEHOLDS. FIRMS. Labor, land,.

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Unit-2 Macro Cram

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  1. Unit-2 Macro Cram GDP, Unemployment, Inflation

  2. Spending Revenue PRODUCT MARKET PRODUCT MARKET Goods and Goods and Goods Goods services services and services and services bought bought sold sold FIRMS HOUSEHOLDS HOUSEHOLDS FIRMS Labor, land, Labor, land, Factors of Factors of capital & entrepreneurship capital & entrepreneurship production production FACTOR MARKET FACTOR FACTOR Market Wages, rent, Wages, rent, Income and profit and profit = Flow of inputs and outputs = Flow of dollars Circular Flow of a closed Economy Circular Flow Speeds Up GDP ↑

  3. Business Cycle PEAK PEAK 2000 2006 Housing Bubble 1990’s Technology Boom Great Recession Dot.com Collapse 2014 2001 ? TROUGH 2008-09 TROUGH

  4. Business Investment, Consumer/Business Construction, & Change in Inventories. (new houses count as investment!) Measuring Economic Growth: Calculating GDP: GDP = C + I + G + (X-M) What Counts? Only NEW & FINAL goods Domestic Products (made in USA) What does NOT Count? Used goods International products Financial transactions Non-market transactions Gov’t Transfer Payments (i.e. welfare, social security, unemployment) GDP does not measure: mix of goods, quality of products, quality of life, leisure time

  5. 2 Ways to measure GDP or Labor  Wages Land  Rent Capital  Interest Entrep.  Profit Talent GDP = C + I + G + NX All Spending = All Income: Y = C + I + G + (X-M) GDP = Aggregate Demand (AD) GDP is calculated by adding up all spending or adding up all income)

  6. Allows for some Frictional & Structural Natural Rate is where: Cyclical unemployment is zero Seasonal “factored out” Natural Rate of Employment (also called full employment) About 4.5% in USA 4-Types of Unemployment • Structural • Skills do not match demand for labor • Cyclical • too low a level of GDP (recession) • Frictional • Temporarily between Jobs • Seasonal • Based on time of year

  7. What should be in basket? Base year always 100 Use to calculate inflation rates Measuring Inflation • GDP deflator– uses price of all goods/services included in GDP • Very Broad index but only has domestically produced goods • CPI index – uses prices of a consumer market basket of goods & services • Very narrow index but has internationalgoods Inflation Index: 1990 100 2000 115 Substitution Bias New goods Quality changes COLA = cost of living adjustment

  8. Practice Test #2 • Questions #1 - #20

  9. Multiple Choice Answers

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