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Economics (266)
ECON 305 (10)
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Lecture

# 1-30_

3 Pages
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School
University of Maryland
Department
Economics
Course
ECON 305
Professor
Dr.Neri
Semester
Spring

Description
1-30 Macro No one model can really show the long run and short run. Therefore we will use dif’n models for dif’n issues.  For each new model, you should keep track of  its assumptions  which variables are endogenous, which are exogenous  the questions it can help us understand, those it cannot Market Clearing: assumption that prices are flexible, adjusting to equate supply and demand Short run, prices are sticky- adjust sluggishly in response to changes in supply or demand. Ex. Labor contracts fix nominal wage for yr or longer. If prices are sticky, demand may reduce, only changing the supply by a greater amount than eq would be, creating an excess supply (unemployment) If prices flexible (long run), markets clear and economy behaves very differently CHAPTER 2 GDP two definitions: (Expenditure=Income b/c every \$ spent by a buyer becomes income to the seller)  Total expenditure on domestically-produced final goods and services.  Total income earned by domestically-located factors of production. (land labor capital entrepreneurship) Value added is the value of the output less the value of the intermediate goods used to produce the output. GDP here would be \$5. Or could get it by adding the value added of each step. Value added- factor of production Wages-labor Rent- land Interest- capital Profit-entrepreneurship  consumption, C ,investment, I, government spending, G, net exports, NX An important identity: Y: value of total output, right side is aggregate expenditure Y = C + I + G + NX C- value of all goods and services bought by households including durable goods (cars, homes), nondurable goods (foods, clothes), and services [work done for consumers] (dry cleaning, air travel) I- Spending on goods bought for future use ( spending on NEW capital) (i.e., capital goods) including Business fixed investment Spending on plant and equipment Residential fixed investment Spending by consumers and landlords on housing units Inventory investment The change in the value of all firms’ inventories A stock is a quantity measured at a point in time, a low is a quantity measured per unit of time. G includes all gov’t spending on goods and services
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