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The Economy
Professor T. Moran
Lizbeth Mejia Uceda
ECO 111 Macroeconomics
April 29, 2024.
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I ...... GPD Measuring Total

Production

II....... Unemployment and Inflation

III........ Economic Growth, Financial

System and Business Cycles

IV............Aggregate Expenditure and

Output

V.................... Fiscal Policy

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Why is the difference between Real GPA and GPA? According to the Bureau of
economic analysis (The United States department of commerce) Gross Domestic Products
(GPA) the value of the goods and services produced by the nation's economy is less than the
value of the goods and services used up in production. GDP is also equal to the sum of
personal consumption expenditures, gross private domestic investment, net exports of goods
and services, The process of measuring Gross Domestic Product has two different
approaches, the expenditure approach which starts off with the total output of an economy’s
goods sold the total market value of all final goods sold produced in a given time period. The
Expenditure approach consists of consumption, investment, government and lastly
exports/imports. Lastly The other approach is the income approach the process goes like the
eco activity must be counted only once as well must goods sold go through multiple stages of
production only the final market value is counted as well as purchased for final use by the
consumer as well intermediate goods are ignored goods purchased for resale or further
processing later.
In the income Approach the total Economic activity is not the sum total of the sells
column the value of the earlier producers is included in the final valued added to the market
value of a firms output minus the value of the input the firms has bought from others that
causes different is paid out as wages, rent, interest, profits as well in the income approach
includes statistical adjustment. As for Gross Domestic Product the way to calculate GDP
(Gross domestic product) is to know that GDP should be represented at a level of economic
performance by measuring the quality of goods produced. We also measure this with money
but money changes in value over extended periods of inflation overvalues today's perceived
output and makes prior levels look less than what level they were at.
According to the Bureau of economic analysis website The Gross Domestic Product
over the four quarters during 2023 was remarkably interesting during the first quarter the
Gross domestic Product (GDP) increased at an annual rate of 1.6 percent in the first quarter
of 2024, according to the “Advance” estimate released by the bureau of economic analysis.
In the fourth quarter of 2023, real GDP (Gross domestic product) increased 3.4 percent. The
Gross domestic product estimated on the first quarter of 2023 of gross domestic product
(GDP) 1.6 percent during the second quarter of 2023 the gross domestic product decreased to
1.3 percent which means inflation decreased. During the third quarter the gross domestic
product increased from 1.3 percent to 9 percent, which means inflation increased and did
well. Lastly, during the four quarter the gross domestic product decreased from 9 percent to
7.5 percent. According to the bureau economic analysis the increase in real Gross domestic
product primary reflected an increase by Comsumers spending, residential fixed investment
and state and local government spending that were a partly offset by a decrease in private
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inventory investment, imports, which are a subtraction in the calculation of gross domestic
product increased the increased in consumers.

Unemployment is measured by the unemployment rate is founded by unemployed

divided labor forces divided by one hundred and there are multiple different types of
unemployment one type of frictional unemployment which is a normal part of the economy
and people between jobs (either from voluntarily or fired) or looking for their looking for
their first jobs, second type is structural unemployment results from changes in consumer
demand, technology, geography as well as jobs no longer needed and ex blacksmiths and
auto/new computer jobs, shift from farming to mfg. can be expect to be unemployed for
longer vocational retraining. Lastly cyclical unemployment, which means unemployment
that results from a recession.
Unemployment has a cost called the unemployment cost which is when
unemployment equals unproduced goods sold Gross Domestic Products Gap the difference
be actual Gross Domestic Product and potential Gross Domestic Products when the Gross
Domestic Products at Full employment. For example, the Okun law for every 1 percent
actual unemployment exceeds the NRU a Gross Domestic product gap of 2 percent results.
The unequal burdens the process is when the unemployment rate is not the same for each
group in society. The groups are the Occupation lower/higher, age younger/higher, race
black/white, gender similar and education less/more and lastly duration increases during a
recession. According to the United States Bureau of labor Statistics the unemployment rate is
currently at 3.8 percent, and the number of unemployed people is currently at 6.4 million
people (about twice the population of Nevada) changed little in March the unemployment
rate has been in narrow range of 3.7 percent to 3.9 percent since august of 2023. As well as
the number of long-term unemployment rate (those jobless for more than 27 weeks (about 6
months) or more) at 2.1 million was little changed in March. The long-term unemployed
accounted for 19.5 percent of all unemployed people.
Inflation is something that I personally like to describe as a roller coaster ride
experience, but inflation is an increase in the overall price level measured in U.S dollars as
well as the index current which is the prior divided by the prior is percentage increase for the
year. There are the several types of inflation one type of inflation are called a demand pull
which is when the economy approaches full employment, it cannot produce more output.
According to the U.S Bureau of Labor Statistics inflation during from September 2023 was
at 0.4 percent from January 2024 inflation was at 0.3 percent now during March 2023
inflation is at 3.5 percent which is high, and the prices have risen since then as well as
inflation.
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The growth of the economy is measured for the economy which increases in Real Gross
domestic Product or per capita GDP/Population Growth lessens the burden of scarcity. As an
economy grows, it produces more goods used to satisfy wants. increases/decreases in the level
of economic activity (as measured by GDP) these increases and decreases are referred to as a
Recession v depression which is a vary by intensity and duration Causes of the business cycle
which are the changes in total spending and If spending decreases businesses lay workers off and
this results in further declines in spending as well as If spending increases businesses increase
production by hiring. This results in further increases in spending which starts the original
change in spending, some Causes of Business Cycles one is External Innovations which increase
productivity and investment leads to growth. Another one is Political Events stability leads to
growth; instability leads to recession another is Internal is the Psychological of If people believe
that conditions will improve Businesses invest, People spend If people believe that conditions
will worsen, Businesses cut back, People spend less, Self-fulfilling prophesy another one is
Underconsumption which is a Ability of people to purchase the goods society produces must
keep pace or overproduction /underconsumption will result Excess inventories result, businesses
cut back & recession occurs.

The Impact on different sectors of the economy which Durables/capital goods as well as
becomes a Negative impact in recession as business and consumers delay purchases/repair old
and Nondurables/services less impacted as people still need haircuts, legal services, food etc.
Financial is a public transfer payment which are payments are not made for what is
produced-a social goal is Ex social security Welfare Private transfer payments No increase in
eco activity to measure Gifts etc. and Stock market, Trading paper Stockbroker fee is
including Second hand Does not represent new eco output been captured in the year
purchased as new.
M2 = M1 + savings deposits + small (<!00,000) time deposits + Money market mutual funds
includes more types of money than M1 Includes Near Monies – financial assets/investments
that are easily converted into money savings accounts and time deposits – small < 100,000 –
deposits that earn higher rates of interest than savings accounts because they cannot be
accessed until after a certain period of time money market mutual funds – mf – a way of
indirectly investing in the stock market – checks can be written against these accounts M3 =
M2 + large time deposits large time deposits are usually owned by businesses.

Expenditure is like Gross Domestic Product (GDP) Multiplier effect – a given increase or
decrease in spending by one of the 4 components of Agg Exp will result in a greater change in
GDP/output the initial increase/decrease is repeatedly partly repent and partly saved how much
does depends on the MPC/MPS Multiplier equals Change in real GDP/initial change in spending
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1/MPS or = 1/(1-MPC) and Note the Multiplier is the inverse of the MPS as well as The larger
the MPS, the smaller the multiplier and The smaller the MPS the larger the multiplier.

Assumptions is only C and I (= aggregate expenditures) no deprecation Means GDP equals 500
of output = 500 disposable inc Consumption as well as income largest determinant of consumer
spending and savings show graph – consumption / DI 45 deg line 45 line – consumption = DI
and Savings v dissaving's. Breakeven income – intersection = households plan to consume all DI
and Lower incomes save smaller % of DI , Higher incomes save greater % of DI Sum together =
1 (DI is either saved or spent and Look familiar – slope of consumption and savings schedules
and Changes in DI = a movement along the consumption schedule = a change in amount
consumed and Non income determinants of consumption and savings = consumption schedule
shifters wealth expectations, taxation, household debt. Investment marginal cost(interest rate that
must be paid on the borrowed funds) v marginal benefit (expected rate of return on the
investment) Investment Demand Curve and Inverse relationship bn real interest rates and
$ invests and Rates does not income (GDP) and Changes in investment cause most fluctuations
in GDP/employment, Equilibrium GDP as well as the output production of output that creates
total spending that creates just enough total spending to produce that output lastly the graph.

Enhanced Model is a Summary of planned changes of Multiplier effect – a given increase or

decrease in spending by one of the 4 components of Agg Exp will result in a greater change in
GDP/output the initial inc/dec is repeatedly partly repent and partly saved how much -depends
on the MPC/MPS aka aggregate output All goods produced in the US regardless of ownership
Cars made in US by either GM or Toyota Vs GNP values of all goods produced by Americans
regardless of where produced and measured by money Final goods and Eco activity has to be
counted only once Most g/s go thru multiple stages of production. Only the final market value is
counted Purchased for final use by the consumer total economic activity is not the sum total of
the sells column (140), the value of the activity of the earlier producers is included in the final
price value added the market value of a firm’s output minus the value of inputs the firm has
bought from others. this difference is paid out as wages, rent, interest, profit (FOP)Excluded
nonproduction transactions Financial is a public transfer payment are not made for what is
produced-a social goal is Ex social security, Welfare Private transfer payments has No increase
in eco activity to measure Gifts etc. Stock market has Trading paper includes Stockbroker fee is
included. Second hand Does not represent new eco output Would have been captured in the year
purchased as new

The Fossil Policy: the Government uses spending and taxation to achieve economic goals which
are growth, low unemployment, and low inflation. has Multiple different types of Fossil policy
one type of fossil policy is Discretionary expansionary fossil policy which happens when the
economy goes through a Recession which increases the spending, another type of Criticisms
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fossil policy which happens when the policy it takes the govt a pd of time to recognize an
economic problem and pass on the legislation to deal with it if there is problem it maybe be over
by the time government policy also become effective. Also, will cause the economy to worsen
also Financing fiscal policy and its impact on its effectiveness finance a deficit Borrow is selling
interest bearing bonds lessens the beneficial impact of expansionary fiscal policy roading out the
increased amount of borrowing by the govt may increase interest rates. This may lead to
decreased investments spending by I and reduced C for durable goods (interest sensitive
purchases) assumes no change in the supply of money as well as new money if the central bank
creates new money to finance the deficit, then there will be no crowding out although this is
inflationary.

Criticisms of Fiscal Policy has Timing which it takes the govt a pd of time to recognize an
economic problem and pass legislation to deal with it. The problem may be over by the time
government policy becomes effective. Worse the eco may be headed ion the opposite direction
and so disc up may make the policy worse which are 3 types of timing problems one is
recognition – knowing the current state of the eco another one is administrative passing a law to
do something to fix the eco another is operational government spending G takes time to be
beneficial changes in T are effective ore quickly – now more common than good state
governments tend to be pro-cyclical- spending more when GDP is growing and less when it is
decry – balanced budgets etc. – offsets the effectiveness of federal policy is crowding out are exp
policy/deficit spending will lead to
higher interest rates, less spending by I and C, Offsets the effectiveness of disc fed policy
in G and C may lead businesses to believe that projects will be more profitable, increasing the
expected return on investments. As a result, no decrease in I may occur. – ID may increase,
resulting in the same number of investments spending at the higher interest rate as well as Fiscal
policy on the intermediate AS curve Some of them stimulative effect of disc fiscal policy will
result in inflation in addition to reduced unemployment and increases in real GDP

Supply side fiscal policy Cutting taxes increases C and S resulting in more finds available for I
Reducing T increases the profitability of any given I Both inc S and reduced business T will lead
to increases in I, shifting AS to the right. – eliminating any potential inflationary impact of fisc
policy Some SSES believe that this increase in business activity will generate more tax revenue
than was lost by the initial tax cut Mainstream economists disagree – a tax cut will reduce govt
income but the idea that changes in T will impact AS is now accepted.
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The Graph shows the

price increase of eggs
throughout the world. The
two lines highlighted in
yellow are the real GPD
(Gross domestic
Product).
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Lizbeth Mejia Uceda

Professor T. Moran

4-29-24

Term paper

Worked Sited

Definition for (Gross domestic products GDP) and information used: “News Release.”
Gross Domestic Product, First Quarter 2024 (Advance Estimate) | U.S. Bureau of
Economic Analysis (BEA), www.bea.gov/news/2024/gross-domestic-product-first-quarter-
2024-advance-estimate. Accessed 1 May 2024.

For information of unemployment and inflation: U.S. BUREAU OF LABOR STATISTICS.

“Employment Situation Summary.” Bls.gov, 2 Feb. 2024,
www.bls.gov/news.release/empsit.nr0.htm.
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