Econ 104 Notes from Feb 23 and 25
Econ 104 Notes from Feb 23 and 25 Econ 104
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This 0 page Class Notes was uploaded by Bailee Gustafson on Tuesday February 23, 2016. The Class Notes belongs to Econ 104 at University of Wisconsin - Milwaukee taught by Dr. Mohsen Bahmani-Oskooee in Winter 2016. Since its upload, it has received 17 views. For similar materials see Principles of Macroeconomics in Economcs at University of Wisconsin - Milwaukee.
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Date Created: 02/23/16
Notes from Feb 23 amp 25 Lecture Starting from last week39s notes 2015 2016 P15 P16 015 016 Good 1 10 20 10 10 Good 2 2 3 100 100 Good 3 20 25 6 6 Good 4 1000 2000 0 0 Z P16Ql6 650 Z P15QlS 420 In ation Rate increase in cost of the same basket of goods For this problem the in ation rate would be 547 650420 100 0 Method 4 Let us x the quantities at their 2016 level 2015 2016 P15 P16 015 016 Good 1 10 20 2 2 Good 2 2 3 110 110 Good 3 20 25 6 6 Good 4 1000 2000 0 0 Z P15Ql 360 Z Pl Ql 520 By what is 520 gt 360 520 360 100 l In ation Rate 444 Nominal GDP Real GDP 100 GDP De ator Important Points 1 CPI Consumer Price Index uses old basket of goods whereas GDP de ator used current basket of goods 2 When the old basket is used to construct a price index most of the time we overestimate in ation 3 A concept very close to CPI known as Cost Living Index is available geographically John Maynard Keyes 18831946 0 Originally a classical economist who believed in a free market until the Great Depression in 1929 During the depression he changed and advocated large scale government intervention to promote employment 0 The assumption is that the price level is xed 0 The implication is that aggregate supply AS is at Aggregate Demand At each price level aggregate demand is the total amount that all consumers business rms government agencies and the rest of the world are willing to spend on goods and services 1 Aggregate Demand C I G X IM 2 We ve also seen that aGDPCGX M production or aggregate demand aggregate supply Question Is Egregate supply equal to Egregate demand all the time Answer If GDP C l G X lM is an accounting identity them the answer is in the af rmative However if C l G and X lM are planned or desired level of spending then GDP CGXIM Case1ClGXIMgtGDP o In this case there is excess demand for goods and services 0 Excess demand usually puts and increase on the price level 0 However since the price level is xed inventories will decline and that will signal the producers to increase the production until excess demand is eliminated until C l G X IM GDP Case2ClGXIMltGDP 0 There is excess supply of goods 0 Inventories will increase 0 Producers will cut production until excess supply is eliminated CGX MGDP Points 1 Since prices are xed or at least they cannot be changed in the shortrun output adjusts so that ADAS aggregate demandaggregate supply 2 In modern macroeconomics it is mostly true that demand dictates the market and creates supply