[ECON 100B] - Midterm Exam Guide - Everything you need to know! (15 pages long)

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6 Feb 2017
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UCSC
ECON 100B
MIDTERM EXAM
STUDY GUIDE
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Econ 100B Lecture Notes 1/11
Chapter 3 Outline
-When economistst think about year to year economic activity they think about interactions
between production, income, and demand
-consumption = good and services purchased by consumers.
-we have no idea how the government plans to spend its money, government spending is
unpredictable
-if exports > imports = trade surplus; if imports > exports = trade deficit
-inventory investment = difference between production and sales
The Demand for Goods
-Z = C + I + G + X - IM, this equation represents the total demand for goods Z as consumption
+ investment + government + exports - imports
-in a closed economy exports will equal imports so the demand equation will be represented
as Z = C+ I + G
-consumption is a function of our income, how much humans consume are correlated to how
much money we are able to make
-Consumption is represented by the equation C = c0 + c1(YD)
-c0 = what people would consume if their disposable income equals zero
-c1= propensity to consume
-YD = income
-YD = Y - T which is income minus taxes so…
C = c0 + c1(Y-T)
-economists either consume or save money, if not consuming they are saving
-if c1 is greater than 1 that means we consume more than we earn through income
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-endogenous variables = variables depend on other variables in the model
-exogenous variables = variables not explained within the model but are instead taken as
given
-taxes and government spending represent fiscal policy = the choice of taxes and spending
by the government
-government spending and taxes are exogenous because governments do not behave with
the same regularity as consumers and firms
The Determination of Equilibrium Output
-Autonomous Spending = spending that takes place even when income equals zero
-marginal propensity to save is 1 - c1 because all the income that is not consumed is saved in
economics
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