Macro Midterm 2 PDF

**Chapter 5 Measuring a Nation's Income ** ------------------------------------------ **Macro** - the whole economy: the Price level (Ch. 6) and the Aggregate output (Ch. 5) This chapter considers **GDP**, which measures total income of a nation. GDP is the most closely watched economic statistic...

**Chapter 5 Measuring a Nation's Income ** ------------------------------------------ **Macro** - the whole economy: the Price level (Ch. 6) and the Aggregate output (Ch. 5) This chapter considers **GDP**, which measures total income of a nation. GDP is the most closely watched economic statistic because it is thought to be the best measure of a society\'s economic well being. For economy as a whole, income must **equal** expenditure **Gross domestic Product (GDP):** The *market value* of *all* ***final*** goods and services produced within a country in a given period of time. - - - - - - - **Y = C + I + G + NX** Y : GDP C : Consumption I : Investment G : Government purchases NX : Net exports **Consumption:** spending by household on goods/services, with the exception of purchasing new housing **Investment:** spending on capital equipment, inventories, and structures, including household purchases of new housing **Government Purchases:** spending on goods and services by municipal, territorial, provincial and federal government. **Net Exports:** value of a nation\'s exports minus the value of imports, also called trade balance **Real vs NOMINAL GDP:** **Nominal GDP:** the production of goods and services valued at ***current prices*** **Real GDP:** the production of goods and services valued at ***constant prices*** *Inflation talk go over* **Chapter 6: Cost of living** ----------------------------- Measuring the **overall** cost of living **Consumer price index (CPI)** is the overall measure of the cost of the goods and services bought by a typical consumer - - **5 Steps to Compute CPI and Inflation Rate** 1. 2. 3. 4. 5. 1. 2. 3. CPI overstates the cost of living of 0.5 % per year due to these problems **GDP Deflator vs CPI** Economists monitor both GDP Deflator and CPI to gauge price rising - - **Correcting economic variables for the effects of inflation** **Real vs Nominal Interest rates** **Real interest rates:** interest reported taking into account inflation Chapter 7: **Economic growth** ------------------------------ GDP Growth rates **Productivity:** the quantity of goods and services produced from each hour of a workers time - - - - **Y = A x F(L, K, H, N)** L = Quantity of Physical Labour K = Quantity of Physical Capital N = Natural Resources H = Technological knowledge How to increase productivity, **Y = C + I + G + NX** Importance in saving, investment, and stable financial markets - - -  **Diminishing returns and the catch up effect** **Foreign Investment** **Education** - - - **Property rights and Political stability:** - - **Midterm Friday : Chp 4,5,6,7,8** **Free Trade:** Trade restriction will inhibit countries growth Things like geography may affect trading, e.g. if a country is landlocked **Research and development:** Major reason living standards are so much higher - - - **Population growth** - - A = Technological Advance L = population H = Human capital N = Average natural resources K = Physical capital Chapter 8: Saving, investment, and the financial system ------------------------------------------------------- **Financial System** are in situations in an economy that help to match 1 persons savings with another person\'s investment Two categories - - Saving and Investment in national income accounts **National Income accounts** Y = C + I + G + NX **Private sector Public sector**