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This 15 page Bundle was uploaded by Lordiah Obas on Monday February 15, 2016. The Bundle belongs to ECO 105 at Pace University taught by Jessica Singer in Spring 2016. Since its upload, it has received 42 views. For similar materials see Introduction to Macroeconomics in Economcs at Pace University.
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Date Created: 02/15/16
Professor Jessica Singer INTRODUCTION TO MACROECONOMICS- ECO 105 Lordiah Obas Introduction to Macroeconomics Professor Singer Spring 2016 Week 1 (1/29/16): Overall Labor productivity (agriculture) Making the world smaller Selling ships Steam ships Canals Railroads Air travel Industrial Revolution (England) World Trade Development wasn’t distributed evenly (rich white folk) Capitalism: changed the nature of work Specialization dependent of employment Working conditions Transformation: material wealth of family 3 people (family unit) Change of Government: Before- Queen by tax collection (never really since and participate to the people) Now- President taxes for school, police, army, etc… Chapter 1 ECONOMICS :THE STUDY OF HOW HUMANS COORDINATES THEIR WANTS /DESIRES,GIVEN DECISIONS-MAKING MECHANISM ,SOCIAL CUSTOMS , POLITICAL REALITIES AND BUDGE. 3 Central Coordinates Problems: 1. What and how much to produce 2. How to product it 3. For whom to produce it Guidelines for economics reasoning: Benefits cost, do it Marginal benefits (incremental) marginal costs Two kind of costs: 1. Money 2. Opportunity: the value of the next best alternative (other thing you didn’t do/pick/buy) Economic reality is controlled by 3 forces: 1. “Invisible hand”- market is self-regulating decreasing lead to efficient/beneficial outcomes without direct regulation. 2. Social and historical forces 3. Political and legal forces So the “invisible hand” markets regulating mechanism and prices in shortage goes up and surplus prices does down. Chapter 2 Opportunity cost can be demonstrated by Production Possibly Curve (PPC) PPC 1. measures the maximum combination of outputs that can be achieved from a given number of inputs [physical resources] 2. Slope downward Butter *C *A *B Maximum of resources are on the curve A= efficient B= inefficient C= unattainable 1mil Guns Butter Shift in the PPC *C A= efficient B= inefficient C= unattainable Guns How do we increase resources? 1. Technology, makes existing resources more productive, land and labor Apply machines Overtime Immigration Butter Butter Guns Guns Tech for guns increase not Tech increase for production butter of butter Butter Tech/ resources increase for everything Guns Why “bowed out?” Producing a combination of butter and guns results in more of both Inputs/ resources are specialized (comparative advantage) Good at one thing If you allow resources to do what they’re best at they will be more efficient Chapter 3 “Economics institutions” - market economy: economic system based on private property (own by yourself) 1. People are encouraged to follow their own self-interest 2. People are free to do whatever they want as long as it legal 3. Prices coordinates people wants 4. Goods are distributed according to ability, effort, and inherited property and historical social forces 5. Government allocates & enforces property rights 6. A system of rewards (wages) and payments (profits) create incentives for individuals to business Who’s is it U.S. economy divided into 3 groups of “economicactors” 1. Household single or groups of people living together and making decisions, - supply “factors of production” (labor time) to business and are paid for doing so (demand good/service) 2. Business private producing units - Produce and sells goods and services to the household and the government - They decide what, how much, for whom 3. Government referee - buys goods and services and employees people Circular Flow Goods Markets Househol Governme Business d nt Factor Markets (labor) Red arrows: (clockwise) 1. Money 2. Money 3. Wages 4. Wages Black arrows: (counter-clockwise) 1. Stuff 2. Labor time 3. Labor 4. Stuff Blue arrows: - Taxes Bolded black arrows: Aid Six roles of the government: 1. Provide a stable set of institutions and rules - Legal structure 2. Promote effective and workable competition -why desirable prices stay low 3. Converting for externalities -when individual do not take into account the effect that try have on third parties + - Education Pollution Museums/operas Smoking Subsidizes Carpool Traffic congestion 4. Ensuring economic stability and growth Fear of uncertainty Fiscal policy (direct government spending) Monetary policy (federal target and interest rates) 5. Provides public goods: a good that supplied to one person, must be supplied to everyone; the consumption of public good by one individual does not prevent its consumption by another National defenses Public transit Utilities (electricity, water, Playgrounds trash) Libraries Roads Hospitals Parks State parks (this is not profitable because it’s a private market and it don’t supply them without the government these thing on top wouldn’t exist) 6. Adjusting for the undesirable market result - Redistribute income from the rich to the poor - HUD, Food Stamps, Medicaid, Medicare, Social Security, unemployment insurance, SSI disability AFDC - Decides what is best for people - Disincentive “demerit goods”: cigarettes(tax), alcohol(tax), prostitutes(ban), gambling (regular tax), illegal drugs(ban) - Incentivize “merit goods”: (subsidized) donating to charity (tax break) Week 2 (2/5/16) Chapter 4 Supply and Demand “Law of demand”: quantity demanded rises as price falls, other things constant- demand goes up, price goes down What accounts for the law of demand? - Why when price goes up, do people buy less? - Outside of budget - *** substitute for a cheaper alternative - Result in a movement along “Quantity demanded” Vs the demand curve (the actual amount price “Demand” attached of # of units) (entire curve) “Change in quantity demanded” “Change in demand” - Because of a change in price - Because “other things” aren’t constant (only) - Result in a shift in the entire demand curve Stuff factors for demand: 1. Income: - Up for income shift demand right - Down for income shift demand left 2. Price of substitutes goes down, demand for good question will go down 3. Change in tastes 4. Expectations 5. Taxes: - Taxes goes down disposable income, demand is less “Law of Supply” - As price up, supply up (assuming else constant) Why upward sloping? As prices goes up, if the cost don’t increase, profit goes up more profits = better A change in price win result in a movement along the curve When “all else” not constant supply will shift either left or right. Shift Factor for Supply 1. Changes in the prices of inputs (production cost) If production cost goes up, profits goes down, supply shift left If production cost goes down, profits goes down, supply shift right 2. Improved technology Cost goes down, profits goes up, supply shift right 3. Expectations Not rosy expectation shift left 4. Taxes Taxes goes up, cost goes up, profits go down, supply shift left Market Equilibrium 1. Market for banana strain introduced, up portability Market Force - Excess supply price tend to go down - Excess demand prices tend to go up Steps: 1. Movement or shift (changing in price vs anything else) 2. Supply or demand 3. Left or right 2. All white-clothing at NYC fashion show 3. Market for SUV, global gas prices up Week 3 (2/12/16) Long run framework how long? No specific time (when all inputs are variable) Focused on topics of growth supply side “economics” productive capacity Short run framework Economic growth: The U.S. economy is growing how do we know? - We measure: Gross Domestic Product (GDP) dollar market value of goods and services produced domestically in one year. Benefits + Cost Financed) debt service More jobs Pollution Environmental More stuffs Quality of life “productive degradation caplity” Resource exhaustion Business Cycle: Outputs 4 Phrase 1. Peak 2. Downturn 3. Trough 4. Upturn Time Why? Demand-side Issues - Consumers (aggregate demands) How to identify where in the business cycle we are? Leading indicators: 1. Unemployment claims 2. Manufactures order for consumer goods to material 3. Index of consumer expectations 4. Orders for plants and equipment 5. Number of new building permits for private housing units 6. Stock price changes Unemployment: related directly to short run business cycle - Willing to be able to work, actively looking for work, cannot find a job Unemployment rate: number of people who cannot find a job a percent of people who are willing and able to work. (willing and able labor time) 1. Cyclical unemployment due to fluctuations in economic activity 2. Structural unemployment caused by change in the institution structure of the economy - Existed before capitalism, fast now 3. Frictional unemployment: unemployment caused by now extranets into the job for the BBS, BLS, to measure unemployment [unemployment= unemployment/ labor force x100] Accurate is employment rate? 1. Discourage workers not counted: unemployment is lower than they should 2. Underemployed, but for fewer hours than they would like Unemployment to potential outputs (complex version PPC) - The outputs that can be achieved is the economy were performing at target level of employment and capacity utilization( rate of level operation for business) Inflation: a continuous rise “price level” price measure (price index) Comparing the prices of goods overtime 1. GDP deflator: GDP for years in question, relative to the base year 1960 vs. 2015 - GDP goes up, is it actual growth or have prices increased 2. Consumer price index (CPI) - Measures the change in prices of some basket of goods - “real” (adjusted for inflation) vs. “nominal” (prices) Cost of inflation 1. Redistributes income from “winners” to “losers” or the people who change their prices from people who can’t respectively Lender to borrowers in nominal prices - Reduces the information value of prices Measuring the aggregate economy - Aggregate accounting GDP measures total value of goods and service produced domestically in 1 year. Two ways of accounting: 1. Expenditure approaching (equal) 2. National income GDP= C+I+G+X-M C: consumption(HH) - Domestic good I: investment(B) - Savings - Spending for the purpose of - Taxes - Foreign good addition production G: government spending X-M (NX): exports- imports - Expenditure spending by + If X>M government for production of goods and services - If X<M - Does not include transfer M spending in foreign payment goods X sale of domestic goods abroad - GDP is a flow concept: occurs over a period of time (years) - GDP measures final outputs, doesn’t count “intermediate goods” (raw material inputs into production) - Why is this important? – Double counting Example: Is it counted? New car= yes Sell used car= no Sell used car to dealership= car yes but broker fee Selling stock= no broker fee yes GDP GNP: (gross national vs. product) - Value of goods produced within - Value of goods produced by borders citizens domestically or abroad. - GNP + Net foreign fact income (population abroad) Net vs. Gross GDP vs. NDP NDP= GDP- depreciation (wear and tear on productive units) Estimate value of economy: - National income= employee compensation + rent + interest + profits - National income flows inside and GDP outside Shortcoming of GDP? - Measure market activity not “welfare” of the citizens in US GDP vs. Malawi GDP - Doesn’t distinguish between “goods” and “bonds” Up GDP= “bad” Natural disasters Dissing a hole filing it broke up Nonmarket activities Childcare Illegal market activity
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