Macroeconomics: GDP, Inflation, Money, and Trade
Calculating GDP
Expenditure Approach: Consumers + Investment + Government Spending + Net Exports (Exports – Imports)
Income Approach: Rent + Wages + Interest + Profits
Nominal vs. Real GDP
- Nominal GDP: (Price per year * Quantity per year)
- Real GDP: (Price base year (given) * Quantity per year)
GDP Deflator: (Nominal GDP / Real GDP) * 100
% Rate of Change: ((Final – Initial) / Initial) * 100
GDP per Capita: GDP / Country Population
Inflation Rate: ((GDP Deflator Final – GDP Deflator Initial) / GDP Deflator
Read MoreUnderstanding Business Structures, Markets, and Financial Ratios
Business Structures
Sole Proprietorship
A firm owned by an individual or family.
The assets and liabilities are the personal assets and liabilities of the proprietor.
- Unlimited liability
- Low administrative costs
Partnership
A firm with 2 owners sharing the equity. A partnership agreement usually stipulates how decisions and profits (losses) are shared.
- General partners: 1 (unlimited liability)
- Limited partners: 0 (don’t manage business)
- Changes in ownership involve dissolving the old partnership and forming
Money, Trade, and Policy: Key Economic Concepts
Money, Trade, and Economic Policy
The Role of Money in Trade and Living Standards
The existence of money simplifies trade by eliminating the need for barter. This allows for specialization in production, leading to increased productivity and a higher standard of living as people can purchase more goods and services.
Liquidity
The ease with which an asset can be converted into the economy’s medium of exchange is known as liquidity.
Money Supply and Savings
If you withdraw $500 from your savings account
Read MoreDevelopment’s Impact: Consequences, Underdevelopment, and Sustainability
The Consequences of Development
In industrialized countries, development has improved the level and quality of life, leading to higher incomes, more education, and better housing. However, there are also negative consequences:
- Pollution, resource depletion, and environmental degradation.
- Concentration of population in large urban centers and the abandonment of rural areas.
- A widening gap between rich and poor nations.
Underdevelopment: Key Features
- Imbalance between population and resources: High population
Understanding Money: Types, Features, and Monetary Policy
The Essence of Money
Money: A medium of exchange generally accepted. Key characteristics include:
- Desirability and acceptance
- Divisibility
- Durability
- Easy to transport
- Difficult to counterfeit
Types of Money
- Commodity Money: Used as money because it has intrinsic value.
- Representative Money: A document acknowledging a debt or serving as a means of payment.
- Fiat Money: Money with value based on confidence in the issuing entity, not intrinsic value. Examples include existing notes and coins, and bank payments.
Understanding Money, Interest Rates, and Bond Markets
What is Money?
Money is anything generally accepted as payment for goods and services or in settlement of debts. In barter economies, where goods and services are traded directly, transaction costs are high. Barter economies typically reduce these costs by using a commodity money, a good with value independent of its use as money. Using money allows for specialization, crucial for high productivity.
Functions of Money
Money provides four key services:
- Medium of exchange: Facilitates transactions.
- Unit