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Topic 0 Notes ECO 304L
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This 6 page Class Notes was uploaded by Nishtha Kapuria on Sunday January 24, 2016. The Class Notes belongs to ECO 304L at University of Texas at Austin taught by Dr. Mostashari in Spring 2016. Since its upload, it has received 308 views. For similar materials see Introduction to Macroeconomics in Economcs at University of Texas at Austin.
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Date Created: 01/24/16
ECO 304L Mostashari Spring 2016 Topic 0 o study of how society manages its resources I Micro study of how households and firms make decisions and interact with markets I study of economywide phenomena 0 Economic growth 0 Business cycle uctuations o Unemployment 0 Banking system and financial system 0 Central bank policy and the money supply 0 In ation rates and exchange rates 0 Fiscal policy and government debts o Openness of economy capital ows convergence globalization 0 Measurement of macro variables GDP in ation unemployment 0 Develop economic models 0 Consider effect of government policies make predictions I In Econ we assume that and make decisions by evaluating costs and benefits of marginal changes I an individual or firm or society should take action only if the extra benefits from taking the action are at least as great as great as the extra cost I Ignore costs that cannot be recouped or avoided regardless of what is done in the future because they are already incurred Buy a car with no warranty and it breaks down ignore original cost when deciding whether to get it fixed or not 0 the full value of the best alternative that we forgo or give up when we make a choice or decision I Applying a correct cost benefit analysis requires accurately measuring all costs and benefits Going to the movies giving up working added costs of tickets and food Not the value of all missed opportunities only the best most valuable one direct monetary costs requires outlay of money do not require cash outlays o OC of owners time o Foregone interest that would have been earned if had not invested in a business venture I Application Iane needs 100000 to start her own restaurant Assume that this money would be spent on equipment that she could sell at the end of the year for the same amount of money if her restaurant is unsuccessful ie it will not or lose value over time Assume she would use her own money by removing it from her savings account Assume interest rate is 5 for borrowing or saving Q What is the total opportunity cost of investment 0 A Since equipment does not depreciate we do not count the expenditures on the on the equation However Iane does lose opportunity to earn interest on her savings 0 Total oc 05 x 100000 Assume expected profits after paying for all costs except for interest is 6000 Q Should she invest o A I 6000 gt 5000 Assume Iane had already spent 2000 on non refundable permits She then learned before she invests that her expected profits would be 6000 Q Should she invest o A 2000 sunk cost ignore cannot be recouped What are they How are they achieved 0 I Microeconomic goals within a particular market 0 Efficiency I Macroeconomic goals for the whole economy Equity Growth Stability o an outcome where there is no way to make one person entity better off without hurting someone else no money left on the table I In micro the market will get to an efficient outcome by itself in some situations I In other cases of market outcomes eg monopoly ie someone s outcome negatively effects someone else eg pollution o eg buyers not aware of the quality of goods being sold not provided for in a private market 0 fairness equal distribution of prosperity across all members of society I Equity does not always efficiency I Reasons include lower crime rates lower unemployment etc I unemployment insurance progressive tax system etc o increase in total output of an economy I Economy can produce and consume more goods and services 0 condition in which national output is growing steadily with low in ation and full employment of resources I Prices are not increasing much over time I All resources getting hired and have income the 2 goals sometimes con ict Notes Key As make attempt to describe the world as it is I Can be confirmed or refuted with data As make attempt to prescribe how the world should be I Opinions which of these statements are normative and which are positive I Prices rise when the government increases the quantity of moneyquot gt I The government should print less moneyquot gt I A tax cut is needed to stimulate the economyquot gt I An increase in the price of burritos will cause an increase in consumer demands for music downloadsquot gt Main topic subj ect section Definition Important point List Example
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