(3) Goods market Flashcards
3 ways to measure GDP
output method, income method, expenditure method
output method
total value of goods and services in a given time period
income method
total income
expenditure method
total spending
determination of aggregate output in short run
total spending
determination of aggregate output in medium run
supply factors (size of labour force, capital stock, level of tech)
determination of aggregate output in long run
innovation (new tech, education, quality of institutions (govt))
change in D for goods in goods market causes
change in production
change in production in goods market causes
change in income
change in income in goods market causes
change in D for goods
GDP formula
C + I + G + (X-M)
trade balance
X = M
trade surplus
X > M
trade deficit
X < M
closed economy, Z=
Z = C + I + G (X=IM=0)
change in c0
change in consumption for given level of disposable income
disposable income formula (YD)
Y - T (income - govt tax transfers)
equilibrium in the goods market
investment = saving
endogenous variable
depends on other variables in model
exogenous variable
variables not explained in the model, but instead taken as a given
why are T and G exogenous
bc govt spending and taxation are determined by policy choices
equilibrium condition in goods market
Y = Z
dynamics of adjustment
adjustment of output overtime
how long adjustment takes depends on
how and when firms revise their production schedule
