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Chapter 4 ========= GDP (gross domestic product) -- a single number that measures the economy's total output. Market value of all **final** goods and services produced within a country in a given year. Expenditure approach -------------------- - GDP=consumption(C)+private investment(I)+governme...

Chapter 4 ========= GDP (gross domestic product) -- a single number that measures the economy's total output. Market value of all **final** goods and services produced within a country in a given year. Expenditure approach -------------------- - GDP=consumption(C)+private investment(I)+government purchases(G)+net exports(X) Flow variable -- measured over a specified period Stock variable -- independent of time Consumption -- flow variable, measures the value of goods and services households purchase during a period. 70% of total output A diagram of a company\'s supply chain Description automatically generated Private investment -- value of all goods produced during a period for use in producing other goods and services  Government Purchases A diagram of a company Description automatically generated Net Exports - Exports - Imports ### Value added Approach Sum of value added at each stage or production Income Approach --------------- GDI -- Gross domestic income GDP = GDI Nominal GDP and Real GDP ------------------------ Nominal GDP=Price×Quantity Real GDP=Base Year Price×Current Year Quantity GDP Deflator=100×(Nominal GDP/Real GDP) GNP --- Gross National Product GNP of a country equals the value of the final output produced using factors owned by residents of the country operating outside the geographical boundary. Chapter 5 ========= The Labour Force ---------------- - Employed: currently working for pay - Unemployed: out of work and actively looking for a job - Out of the labour force: out of paid work and not actively looking for a job - Labour force: the number of employed plus the unemployed - Unemployment Rate: percentage of the labour force that is unemployed - Labour force participation rate: percentage of the working-age population that is in the labour force - Employment population ratio: percentage of the working-age population that is employed or has some form of paid work Types of Unemployment --------------------- - Frictional Unemployment: Unemployment that occurs because it takes time for employers and workers to find each other - Structural Unemployment: individuals lack skills valued by the labour market - Cyclical Unemployment: changes in employment from changes in GDP; recession - Seasonal Unemployment: construction, fishing, farm work - Natural Rate of Unemployment: only frictional and structural unemployment - Full employment: when actual unemployment equals natural unemployment Inflation --------- - General and ongoing rise in the level of prices ### Price Index - A number whose movement reflects movement in the average level of prices - Four Steps: 1. Select the kinds and quantities of goods and services to be included in the index. Market Basket 2. Determine the cost of the market basket in a base period 3. Compute the cost of the market basket in the current period 4. Compute the price index. Current cost/base period cost - Consumer Price Index: Overall change in relative prices over time - Likely to overstate inflation - Components of the market basket are fixed - Substitution bias - Excludes new goods and services - New product bias - Quality changes may not be completely accounted for - Quality change bias - The type of store can affect prices - Outlet bias - Inflation rate: (CPI current year -- CPI last year)/CPI last year Chapter 6 ========= Economic growth is measured as a percentage change in real GDP between different time periods There are three key points about economic growth to keep in mind: 1. Growth is a process. It is not a single event; rather, it is an unfolding series of events. 2. We define growth in terms of the economy's ability to produce goods and services, as indicated by its level of potential output. 3. Growth suggests that the economy's ability to produce goods and services is rising. Economic growth is thus a discussion of the series of events that increase the economy's ability to produce goods and services. Real GDP per capita = real GDP / population \% rate of growth of real GDP per capita ≅ %rate of growth of real GDP − % rate of growth of population Rule of 70 -- variables approximate doubling time equals 70 divided by the growth rate Labour productivity -- human capital, technological change, and economies of scale (industries cost advantages due to size) Production function -- process of turning economic inputs into outputs - Aggregate production function -- for the entire economy  Capital deepening -- society increases the level of capital per person An economy's rate of productivity growth is closely linked to the growth rate of its GDP per capita. A common measure of productivity per worker is the dollar value per hour the worker contributes to the employer as an economy continues to increase its human and physical capital, the marginal gains to economic growth will diminish Fast growth countries average at least 5% per year from 1990-2000 and 2000-2008 Slow growth less than 2% Chapter 7 ========= **Financial Markets** are marketplaces where money is invested and borrowed, or in other words, where securities are traded. **Securities** are a synonym for financial assets or a certificate or other financial instrument that has monetary value and can be traded. These can be debt securities like bonds or equity securities like stocks. **Bond** is a financial contract through which a borrower like a corporation, a city or state, or the federal government agrees to repay the amount that it borrowed and also a rate of interest over a period of time in the future; usually long-term (greater than 10 years) debt instruments. Financial markets include the banking system, equity markets like the stock exchange, bond markets, and commodity markets. Private savings = income + transfer payments -- consumption -- taxes Public savings = Taxes -- government spending -- transfer payments Macroeconomic identity - Savings finances investments **Interest Rate **is the "price" of borrowing in the financial market, a rate of return on an investment. A **consumer price index** (**CPI**) is a [price index](https://en.wikipedia.org/wiki/Price_index), the price of a weighted average [market basket](https://en.wikipedia.org/wiki/Market_basket) of [consumer goods](https://en.wikipedia.org/wiki/Goods) and [services](https://en.wikipedia.org/wiki/Service_(economics)) purchased by households. The **GDP deflator** (**implicit price deflator**) is a measure of the money price of all new, domestically produced, final goods and services in an economy in a year relative to the real value of them. Real interest rate -- rate of return minus an index of inflation, like the rate of change of CPI or GDP deflator Laws of supply and demand apply to loans. As interest rates increase, demand decreases and supply increases and vice versa. Also subject to external events cause shifts in the supply or demand curves - Demand shifts - Consumer optimism or pessimism - Changes in business amounts - Tax credits - Supply shifts - Speculation of a change in the economy - Change in consumption desires, affecting how much is saved - Government policy Crowding out -- government enacts policies that require borrowing, causing potentially less private investment. Government spends money that the private sector could have spent instead Chapter 8 ========= Aggregate expenditure -- current value of all the finished goods and services in the economy. Consumption + Planned Investment + Government Expenditure + Net Exports. AE=C+I+G+NX In equilibrium when AE = GDP - What is being produced = what is being sold - If AE is greater than GDP, spending is greater than production - Leading to companies ramping up production, shrinking inventories, increasing employment and GDP - If AE is less than GDP, spending is less than production - Companies will cut back on production, increasing inventories, decreasing employment and GDP Consumption - Disposable current and future income - Marginal propensity to consume (MPC) - Change in consumption/change in disposable income - Consumption function - If income = 0 then consumption is autonomous consumption - Marginal propensity to save (MPS) - MPC + MPS = 1 - National income = GDP = Disposable income + net taxes - Household wealth - Assets - liabilities - The real interest rate - Price levels Planned Investment - Expectations about future profitability - The real interest rate - Taxes - Cash flow Government Purchases - Independent of GDP Net Exports - Purchase of imports increases with national income - Exports are independent of GDP Keynesian cross diagram determines equilibrium point where AE = output produced Multiplier Effect  - Multiplier = 1/(1-MPC) - OR = Change in GDP/change in any autonomous expenditure