economic measures and reasons for changes in the economy
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how is GOP calculated under the expenditure approach?
- under the expenditure approach, GOP is calculated by summing total expenditures in he domestic economy, GDP is calculated as; Government purchases of goods and services + gross private domestic investment + personal consumption expenditures + net exports ( exports minus imports)
- Mnemonic: GICE
How is gpd calculated under the income approach?
- under the income approach, GDP is calcualted by summing the value of resource costs and incomes generated durng the mesurement period. GDP is calculated as:
- income of propietors + profits of corporations + intrests(nets) + rental income + adjustments for net foreign incom + taxes ( indirect business taxes) + employee compensation (wages)+ depreciation (capital consumption allowence)
- mnemonic: I PIRATED
what are the causes of demand-pull inflation and cost-push inflation?
Demmand-pull inflation is caused by increases in aggregate demand. thus, demand-pull inflation could be casued by factors such as increases in government spending, decreases in taxes, increases in wealth, increases in consumer confidence, and increases in the money supply.
Cost-Push inflation is caused by reductions in short-run aggregate supply. this, cost-push inflation could be casued by factors such as an increase in oil prices and and increase in nomial wages.
What is the difference between nomial GDP and real DDP?
NOMIAL GDP-measures the value of all final goods and services produced within the borders of a nation in terms of current dollars (i.e., the prices prevailing at the time of production).
REAL GDP- measures the value of all final goods and services produced within the borders in erms of constant prices (i.e., the value of goods and services adjusted for changes in the price level.) Deflator is the price index used to adjust nomail GDP for changes in the overall prices of goods and services.
Define Gross Domestic Product (GDP).
gross domestic product is the total market value of all final goods and services produced within the borders in the nations parictular time period. note that GDP includes the output of U.S. owned factories operating abroad.
Explain the relationship between interest rates and the .money supply.
changes in the money supply directly affect rates through the money supply shifts the money supply curve to the rightt and causes intrest rates to fall. A decrease in the moeny suply shifts the money and increase in the money supply curve in the money supply leads to a decline in intrest rates and a decline in the money supply leads to an increase in intrest rates.
List the three ways the federal reserve could increase the money supply.
- 1. open market operations : purchase government securities on the open market.
- 2. changes in the discount rate: lower the discount rate
- 3. changes in the required reserve ratio: lower the required reserve ratio
What is the likely impact of a decrease in the money supply on intrest rates, real GDP, and the overall price level?
a decrease in the money supply leads to an increase in intrest rates. as intrest rates rise, the cost of capital increases, leading to a decline in investment spending and a shift left in the aggregate demand curve. as the aggregate demand cureve shifts left, real GDP and the overall prices levels fall. thus, a decrease in the money supply leads to :(1) an increase in intrest rates (2) a decreasse in real GDP and (3) a decrease in the overall price level.
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