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Chapters 1-7 Brief Notes

by: Camille Castleberry

Chapters 1-7 Brief Notes Econ 201

Camille Castleberry
Christopher Newport University

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About this Document

These notes cover what has been studied since the first class of the semester.
Dr. Winder
GDP, unemployment, National, Income, social, Security, sunk, cost
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This 9 page Bundle was uploaded by Camille Castleberry on Wednesday September 28, 2016. The Bundle belongs to Econ 201 at Christopher Newport University taught by Dr. Winder in Fall 2016. Since its upload, it has received 5 views. For similar materials see Macroeconomics in Economics at Christopher Newport University.

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Date Created: 09/28/16
Macroeconomics 201 Chapter 1 & 2  Money is not physical capitol. Therefore, a $100 bill would not be considered physical capitol. Types of Resources (inputs, factors of production): 1. Land & natural resources 2. Physical capitol 3. Labor 4. Human capital – the education and training that make people more productive 5. Entrepreneurial ability Economic Decisions 1. Households 2. Firms or businesses 3. Governments 4. Foreign sector (rest of household) Circular Flow Diagram Money Income Resources Households Firms Finished Goods Consumer Spending Microeconomics: the study of individual economic units Macroeconomics: the study of economics as a whole Scientific method: test a theory against the evidence and the facts  Economic theory, hypothesis, principle and model mean about the same thing. o Simplified picture of how the economy works  A positive statement is what was, what is or what will be. Concerns facts.  A normative statement is about what should be or what ought to be. Concerns value judgements. Cannot test. Economic Goals  Low unemployment, low inflation rate, etc. are common economic goals.  It is wrong for an economist to determine a country’s economic goals.  The voters determine the goals due to whom they vote for in elections.  Economists help develop the policies to achieve the goals. Logical Fallacies 1. Correlation implies causality 2. After the fact, therefore because of 3. What is true for the individual is true for the whole. Opportunity cost is the best alternative given up when any item or activity is chosen; next best alternative. Sunk Cost: a cost that has already been spent or incurred. Absolute advantage: the ability to produce a good with fewer resources than others Comparative advantage: the ability to produce a good at a lower opportunity cost than others Production Possibilities Frontier (PPF or PPCurve): highlights the problem of scarcity, opportunity cost and how it increases. 1. The supplies of resources don’t change 2. Technology is assumed to be fixed 3. All resources are fully employed and being put to their best possible use 4. Society only produces 2 types of goods Chapter 3 Decision Makers 1. Households a. Have two key functions: supply resources to firms (labor), purchase goods and services b. Goods are tangible. A service is a haircut. Goods are food. c. Durable vs. nondurable goods: durable lasts a long time like a car or a fridge, a non is something that doesn’t, like fresh foods and vegetables. 2. Businesses or firms a. 3 types of firms: sole proprietorship, partnership, corporation b. Sole proprietorship: firm with a single owner whom has rights to all profits and the owner bears unlimited liability for the firm’s debts. Means if the business ends up deeply in debt, the owner is in charge of paying it, even out of their own pocket. c. Partnership: a firm with multiple owners whom share the firm’s profits and who bear unlimited liability for the firm’s debts. If you’re in a partnership with 4 others and one does bad and you owe tons of money, the money comes from all of you even if you didn’t screw up. d. Corporation: legal entity owned by stockholders whose liability is limited to the value of their stock. If the corporation ends up owing lots of money, you don’t pay it. The business does but you lose your stock. Only one that sells stock. Income is double taxed. 3. Governments a. Roles: Safe guard private property and enforced contracts, promote competition like busting up monopolies, regulate natural monopolies (where 1 firm can produce the product at a lower cost than a large number of smaller firms), provide public goods (a good that once its produced, it is available for all to consume; nonexclusive and nonrival in consumption) national defense is an example, correct for externalities (a cost or benefit that falls on a third party & is therefore ignored by the 2 parties involved in a transaction), to achieve a more fair distribution of income 4. Foreign sector or rest of the world “S Corporation” certain small corporations can qualify as this…the advantage is you don’t have to pay the corporation income tax. So no double taxes. Chapter 4 Factors affecting the Demand for “Good X”: 1. (Px) the price of Good X 2. (Y) the level of income 3. (Pop) the size of the population 4. (Ps) the prices of substitute goods 5. (Pc) the prices of complimentary goods 6. (T) the taste and preferences Qx = f(Px, Y, Pop, Ps, Pc, T) Qx = f( -, +/-, +, +, -, +) The price is negative effect The income level can be positive or negative Population size is positive effect Substitute good prices is positive effect Complimentary good prices are negative effect Preferences have a positive effect Where Qx = demand for Good X Highlights distinction between independent and dependent variables Demand: total amount of good or service that consumers are willing and able to purchase Stock Variable: measured at a specific point in time Flow Variable: measured over a period of time demand is a flow variable – stock is a flow variable Law of Demand: as the price of X goes up, the demand of good X goes down “demand function vs. demand curve” ‘ceteris paribus’ means “all other things equal” or unchanged Price of good X Dema nd Quantity demanded of Good When the demand curve shifts it’s called “change in demand”. When piece of X changes it’s called “change in the quality demanded”. Supply: the amount of a good or service that firms wish to sell Factors Affecting the Supply of “Good X” 1. (Px) The price of Good X 2. (Pi) The prices of the inputs used to produce Good X 3. (Tech) The available technology 4. (Tax/Sub) Taxes or subsidies QsX = d(Px, Pi, Tech, Tax/Sub) QsX = d( +, -, +, -, +) Where GsX = the supply of Good X When one changes in a bubble, it completely changes on the supply curve When piece of X changes and it moves along supply curve The price can do anything, just depends on the magnitudes of the shifts. “indeterminate” or the change in price is ambiguous For many years, the federal government imposed a price sealing for natural gas. There’s none now, but they did for decades. Congress sets the minimum wage, but they cannot enforce that specific amount on businesses. Ch. 5 Gross Domestic Product (GDP) could also be called output or production The market value of all final goods and services produced in the nation in 1 year. Business Cycles (economic fluctuations) The rise and fall of economic activity relative to long term trends Natural periods of expansions and contractions 4 Basic Stages 1. Expansion (total output increases) 2. Peak (highest point) 3. Contraction (recession, total output decreases) 4. Trough (lowest point) Leading Economic Indicators 1. Consumer contents 2. Business hiring 3. Spending by firms 4. Stock market Aggregate Output: a measure of all final goods and services produced in an economy in 1 year Aggregate Demand: relationship between price level and quantity of aggregate output demanded Aggregate Supply: relationship between price level and real GDP provided by firms John Maynard Keynes 1936 The General Theory “unstable” Stagflation (1973-1980) Ch. 6 GDP: dollar value of all final goods and services produced in the economy in one year Monetary: dollar value n Nominal GDP = ∑ Pi * Qi i = 1 Pi = the price of the i-th good Qi = the quantity of the i-th good (i.e, number of units) Price index indicates estimates overall changes in the price level Real GDP: a macroeconomic measure of the value of economic output adjusted for price changes Nominal GDP is in “current dollars” Real GDP is in “constant dollars” Unemployment rates are monthly GDP is quarterly (4 times a year) Comments about the Concept of GDP: 1. GDP only includes the final price of goods and services 2. Non-productive transactions are excluded from GDP a. Secondhand sales also are excluded b. Transferred payments (public and private) are excluded Categories/Types of spending under the expenditure approach: 1) Personal consumption expenditures 2) Government purchases of goods and services 3) Gross private domestic investment Construction, increases in inventories 4) Net Exports: the dollar value of the goods we export minus the value of the goods we import Ch. 7 National income is the income that is earned by the factors of production  Employed person  Unemployed person  Labor force (= E + U): the percentage of the adult population that is either employed or seeking employment  Unemployment rate (= U/E+U)  Labor force participation rate “Discouraged workers”: ones that give up looking for a job and are unemployed U6 Unemployment Rate includes discouraged workers. 1. There may be dishonest people who claim they’re looking for work but aren’t actually working to find a job but want the unemployment benefits 2. There may be people who say they are unemployed but are actually working in the underground economy so they can be making money but also getting benefits Types of Unemployment: 1. Seasonal 2. Frictional unemployment is unemployment that results from the time that takes to match the job seekers and the available jobs 3. Cyclical unemployment that results in a down turn in the business unemployment 4. Structural


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