[ECON 101] - Final Exam Guide - Everything you need to know! (32 pages long)

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29 Nov 2016
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ECON 101
FINAL EXAM
STUDY GUIDE
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Ch 10: Measuring a Nation’s Income
9/19/16
Microeconomics: The study of how individual households and firms make decisions, interact with one
another in markets
Macroeconomics: The study of the economy as a whole
Income and Expenditure
Gross Domestic Product: Measures total income of everyone in the economy
Also measures total expenditure on the economy’s output of goods and services
For the economy as a whole, income equals expenditure because every dollar a buyer spends is a
dollar of income of the seller
The Circular-Flow Diagram
A simple depiction of the macroeconomy
Illustrates GDP as spending, revenue, factor payments, and income
Preliminaries:
Factors of production are inputs like labor, land, capital, and natural resources
Factor payments are payments to the factors of production (wages, rent)
What it omits:
The government
Collects taxes, buys goods and services
The financial system
Matches savers’ supply of funds with borrowers’ demand for loans
The foreign sector
Trades goods and services, financial assets, and currencies with the country’s residents
GDP is:
The market value of all final goods and services produced within a country in a given period of
time
All goods measured in the same units
Things that don’t have a market value are excluded (housework you do for yourself)
The market value of all final goods and services produced within a country in a given period of
time
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Final goods: intended for the end user
Intermediate goods: used as components or ingredients in the production of other goods
*GDP only includes final goods- they already embody the value of the intermediate
goods used in their production
The market value of all final goods and services produced within a country in a given period of
time
GDP includes tangible goods and intangible services
The market value of all final goods and services produced within a country in a given period of
time
GDP includes currently produced goods, not goods produced in the past
The market value of all final goods and services produced within a country in a given period of
time
GDP measures the value of production that occurs within a country’s borders, whether
done by citizens or foreigners located there
The market value of all final goods and services produced within a country in a given period of
time
Usually a year or a quarter (3 months)
9/21/16
Components of GDP
Consumption (C)
total spending by households on goods and services
Investment (I)
Total spending on goods that will be used in the future to produce more goods
Includes spending on capital equipment, structures, inventories
Investment does NOT mean the purchase of financial assets: stocks and bonds
Government Purchases (G)
All spending on the goods and services purchased by government at the federal, state, and
local levels
G excludes transfer payments, such as Social Security or unemployment insurance
benefits- they are not purchases of goods and services
Net Exports (NX)
Exports-imports
Exports represent foreign spending
Imports are the portions of C, I, and G that are spent on g&s produced abroad
Added up equal GDP (Y)
Real vs Nominal GDP
Inflation can distort economic variables like GDP, so we have two versions of GDP
Nominal GDP
Values output using current prices
NOT corrected for inflation
Real GDP
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