Macro Prelim 1

-Insufficiency of demand creates unemployment, people need to start buying things...when no money in public, have the government provide the demand.

-in great depression --> FDR New Deal

-in great recession --> Obama stimulus package

-in pandemic recession. --> stimulus package from senate

1. What goods will be produced?

2. How will these goods be produced?

3. For who will these goods be produced?

- different systems of allocation include: market, autocratic, traditional

various quantities of a specific good consumers are willing and able to purchase at various prices, shows the behavior of the buyers. Must include: specific, consumers, willing and able to purchas

as price rises, quantity demanded falls --> explains why demand has a downward slope, shows movement along the demand curve

various quantities of a specific good producers are willing and able to sell at different prices, behavior of sellers. Must include: specific, producers, willing and able to sell

a situation from which there is no tendency for change, occurs when Qs=Qd

when quantity supplied is greater than quantity demanded at the prevailing price. This leads to competition among sellers which pressures the price causing price to decrease until it reaches equilibrium

when quantity demanded is greater than quantity supplied at the prevailing price. This leads to competition among buyers which drives the price up until it reaches equilibrium

price

(ceteris paribus) income, price of related goods, tastes, advertising, expectations, weather

if there is a change in a ceteris paribus condition --> MUST move to a new demand curve

Qd = f (P, || Y, Prg, T, A, E, W)

price

(ceteris paribus) price of inputs, technology, number of producers, expectations, weather

if there is a change in a ceteris paribus condition --> MUST move to a new supply curve

Qs = f (P, || Pi, T, #, E, W)

a good is normal when consumers purchase more of the good when their income increases

opposite of a normal good, a good is inferior when people purchase less of the good when their income increases

goods used as alternatives to one another. As the price of x increases, the demand for the substitute of x increases

goods used together as a package. As the price of good x increases, the demand for the complement of x decreases.

1. disturbance

2. how 1 side of the market is affected

3. pressure on the price to change --> how the other side of the market responds

4. overall affect on price and quantity exchanged

1. output (growth rate of output)

2. unemployment

3. inflation

1. GDP

2. Income theory

market value of all final goods and services produced within the US geographical confines in a year, the output value is measured in dollars

1. market value

2. final goods and services

3. produced domestically

to be included in GDP, transaction must occur in a market

-ex: daycare payments are included in GDP, but staying home to watch child is not included

-use dollar to measure because constant in all transactions --> makes more sense when you aggregate, don't want measure of GDP to be affected by the units we use

GDP only wants to count an output ONCE, no duplicates. Most goods have multiple stages of production

-How to make sure only counted once? --> look at the value added at each stage to ensure it is the final good/service/transaction

-value added: sum of the value added should be equivalent to the final price

-price markup would be part of the value added

Gross National Product, market value of all final goods and services produced by domestically OWNED factors of production

-included in GNP as long as it owned by USA, regardless of where production occurs geographically

-OLD MEASURE

-purchases of final goods and services by consumer

-about 70% of GDP

-consists of durable and nondurable goods, and services

1. personal consumption expenditures (C)

2. gross private domestic investment (I)

3. government consumption expenditures and gross investment (G)

4. net exports of goods and services (Nx)

-able to target these groups if we want to boost GDP

-can implement government policies to alter GDP

1. fiscal policy: government spending and taxation --> tends to be better at increasing GDP

2. monetary policy: control of money supply --> tends to slop down GDP because raising interest rates slows down the economy

-purchases of final goods and services by businesses

-about 20% of GDP

-fixed investments (new industrial plants and equipment) and change in inventories (accounts for producing goods in one year but selling in another)

-purchases of final goods and services by the government at all levels (state, local, federal)

-about 20% of GDP

-gross investments are like durable goods for the government

-mostly federal spending on defense

-entitlements/transfer programs

-does not equal federal spending budget of $5T

-exports MINUS imports

-subtract imports because already factored into C I G spending

-about -5% of GDP, because we import more than we export

US purchases of foreign goods and services

-in GDP, it is already included in CIG

-measured by who receives the proceeds from selling the output

-in theory, the value of the output is equal to the income earned from producing the output

output = income

households: own everything (land T, labor L, and capital K)

businesses: hire factors of production from households in order to produce goods and services

- B --> H: factor payments are measured by national income

- H --> B: expenditures on goods and services is GDP, which is the market of all final goods and services produced domestically

- Business to Household is the flow of tangible items

- Household to business is the flow of dollars

-B aren't getting as much back from H because of savings, imports, and taxes

-B will buy from other Bs to offset this

-B response = injections

1. GDP (+-) net factor payments (from/to) the rest of the world --> GNP

- from would be US factors abroad and +

- to would be foreign factors working in US and -

2. GNP - capital consumption allowance (depreciating plants and equipment) --> Net National Product

3. Net National Product (+-) statistical discrepancy --> National Income

4. National income (income earned by domestic factors of production) --> should be equal to GDP

-net factor payments from our US factors of production abroad --> ADD

- OR net factor payments to foreign factors working in US --> SUBTRACT

-basically, what you have to do to go from GDP to GNP, domestic production to ownershipca

1. BEA evaluates GDP every Q at an annualized rate (ex: What if Q4 had happened every Q --> yearly GDP)

2. change in GDP can be due to TWO things, Price OR Quantity. Because we want to see output growth, only care about Quantity. An increase in GDP could be do to price --> INFLATION

1. overtime we produce new goods, what happens when we have a new good that wasn't included in the base year? Constantly need to keep changing the base year.

2. Choice of the base year affects the outcome, the growth rate and inflation rate will differ. Allows fro political manipulation concerns

-uses a geometric average of consecutive year prices to calculate RGDP

-base year = 2012

-even though 2012 is the base year, only use data from the current year and the previous year