GDP is…
Gross Domestic Product, aka the market value of all final goods and services produced in a country within a given time period (usually annually)
GDP is used to…
measure and compare economic size and growth of a given country
the four categories of expenditure that comprise GDP are…
Y=C+I+G+NX (cig? no thx)
where:
C: private household consumption - i.e. groceries
I: investment - i.e. capital goods like commercial real estate and inventories
G: government purchases of final goods and services - i.e. city, state, and national spending
NX: net exports (really represents exports - imports) - i.e. buying foreign goods
things like ____ are NOT included in GDP
transfer payments, specifically governmental, like scholarships, or buying stocks
the components/inputs of final goods and services, like materials for a pizza
purchases of used items, like used cars - already included in their production year’s GDP
nominal GDP is represented by the equation…
= Pcurrent * Qcurrent
real GDP is represented by the equation…
= Pbase year * Qcurrent
in the equation Y=AF(K,L)
A= productivity and technology
K= physical capital
L= labor quantity determined in labor market
given an increase in labor supply…
rightward shift of the SL curve = lower wage rates, raise quantity of labor demanded, shifting further along the production function and increasing potential GDP
increase in productivity
shifts production function up, increase inthe demand of labor, increase in wage rates and overall GDP
the LAS curve is…
the relationship between the price level and real GDP when real GDP = potential GDP
vertical line
along it, prices of goods/services and price of resources (like wages) change
the SAS curve is…
the relationship between the price level and the quantity of real GDP supplied when wage rate and the price of other resources is constant
slopes upward
only price level changes
shifts leftward when wage rate/costs increase
the AD curve slopes downward because…
price level increase –> nominal incomes stay the same –> amount purchaseable decreases
opposite is true for the inverse situation
factors that shift the AD curve include…
expectations/economic outlook - positive/negative outlook = direct relationship
monetary and fiscal policy - increase in govt purchases, decreased taxes, or increase in transfer payments –> rightward shift, disposable incomes increase
- decreased interest rates (monetary) –> I goes up
the world economy - positive/negative = direct relationship
the SAS curve slopes up because…
price of any input (usually labor wages) is constant, so businesses can increase profits simply by increasing production = price level goes up –> output goes up
increase in price of an input –> increase in price of production –> decrease in quantity produced/supplied
wealth effect
the effect of a change in wealth on a household or firm’s spending - positive or negative - direct relationship
labor force participation rate
= labor force/ working age pop.
unemployment rate
= unemployed/labor force
fiscal policy
the use of the federal budget to achieve macroeconomic objectives like full employment or low inflation
discretionary vs automatic fiscal policy
discretionary requires an act of Congress/ govt approval, while automatic operates without need of explicit action - like taxes and need-tested spending
actual output > potential output
govt. needs to reduce AD –> decrease expenditures and/or increase taxes
