Agec 21700 1st Edition Lecture 10 Outline of Last Lecture I. Related Goods and ServicesA. Definition of SubstitutesB. Definition of ComplimentsII. Demand Curve ShiftsA. Example of what causes the Demand Curve to ShiftIII. Supply Curve ShiftsIV. Market EfficiencyA. Definition of Consumer SurplusB. Definition of Producer SurplusC. Definition of Social SurplusOutline of Current Lecture I. MacroeconomicsA. Definition of InflationB. Definition of KeynesianC. Definition of NeoclassicalII. Size of the EconomyA. Definition of Gross Domestic Product (GDP)B. Specifications to the GDP DefinitionIII. Who is Buying the Goods and Services?A. Definition of ConsumptionB. Definition of InvestmentC. Definition of Net ExportsIV. The GDP IdentityA. GDP Identity EquationB. U.S. GDP Pie ChartCurrent LectureThis lecture starts with chapter 6, which focuses on macroeconomics. Macroeconomics focuses on how the economy is doing as a whole. This includes looking at inflation, unemployment rates, and if the economy is facing an expansion or recession. Macroeconomics has goals: to see economic growth, inflation rates go down, and unemployment rates go down. Inflation is the overall rising of prices over time. There are specific models that can be used to look at macroeconomics. These included aggregate supply and demand curves. Some economists look at things through the Keynesian school of thought. The Keynesian thought saysThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.that economic recessions create new market equilibrium points in a permanent way. The Neoclassical way of thought opposes this and says that recessions cause a temporary shift in market equilibrium. The government has macroeconomic tools at its disposal as well. Fiscal policy refers to how the government spends money, such as on healthcare. Monetary policy refers to interest rates and is monitored by the Federal Reserve Bank.Economists have come up with a way to measure the size of the economy as a whole. This is called gross domestic product (GDP). This is the value of all final goods and services produced in a given year within a certain country. There are certain caveats and distinctions thatneed to be made about this definition. This specifications prevent double-counting and omittingsomething. Value refers to the monetary value of the goods and services. It does not look at the quantities of goods and services produced. This definition also means to literally account for all goods and services. Final goods do not include intermediates but only those goods sold to the final user. The exception to this is the intermediate goods that are not sold during the given year; these goods are included in the GDP. The GDP does not include transactions from goods and services that were bought during the given year, but produced in the past. It doesn’t matterwho is producing these goods and services, as long as it is in the geographical boundaries of the country. This also does not count inventory stock from prior years. The next question that might arise is “who is buying all these goods and services?” General consumers will buy goods, known as consumption. This could be food, a computer, or service such as going to the dentist. Businesses, on the other hand, buy in the form of an investment. This is not a financial investment like a stock though. This refers to doing somethingsuch as opening a new store. The government does its own buying in the form of building roads,schools, ect… Also included in the GDP are net exports. Net exports are the country’s exports minus their imports. The imports by themselves are not included in the GDP.A GDP Identity refers to an equation that shows how to calculate the GDP of a country.GDP= C + I + G + NXC= consumer consumption, I= business investments, G=government buying, and NX= the net exports= (X-M)= exports minus imports.This value can be negative. The pie chart below shows the GDP breakdown by category for the United States in 2012.GDPConsumption Investment Government Net