Intermediate Macroeconomics Week 2
Intermediate Macroeconomics Week 2 ECON 2202
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This 4 page Class Notes was uploaded by Aaron Notetaker on Friday September 2, 2016. The Class Notes belongs to ECON 2202 at University of Connecticut taught by W. Pace in Fall 2016. Since its upload, it has received 132 views. For similar materials see Intermediate Macroeconomic Theory in Economics at University of Connecticut.
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Date Created: 09/02/16
Macroeconomics Week 2 SEPT 6, 2016 MARKET ANALYTICS (Supply and Demand Graph attached) + increase/ - decrease/ ? change is undetermined Simple cases Increase Demand Price Increase Quantity (D+) (P+) + Decrease Demand P- Q- (D-) Increase Supply P- Q+ (S+) Decrease Supply P+ Q- (S-) Complex cases D+S+ Q+ P? D+S- Q? P+ D-S- Q- P? D-S+ Q P- CHAPTER 1 (many thoughts expressed last week) Developing economic models (to determine what policies can produce better macroeconomic outcomes) 1. Identify an economic question 2. Specify the variables Endogenous variables – explained by the model – i.e. unemployment rate Exogenous variables – go into model (affect model) – i.e. consumer tastes 3. Pose equations or graphical analysis to connect exo variables to endo variables 4. Compare model conclusions with reality Macro focuses on 3 economic data series 1. Real GDP 2. Unemployment rate 3. Inflation rate Nominal GDP – expressed in current dollars Real GDP – adjusted for inflation (using a fixed year for comparison) Real GDP per capita (person) - how big economy is per person Recession – when economic activity declines and real GDP per capita falls (depression is severe recession) Unemployment rate – the percentage of workers looking for work, but who do not have jobs - U% = # of Unemployed individuals/Labor Force Inflation rate – how rapidly the overall level of prices is rising (extreme inflation is hyperinflation) Deflation – when inflation rate is negative Disinflation – inflation has slowed down (inflation rate moving from 5% to 3%, prices still rising, but more slowly) Personal Saving Rate – percentage of disposable income that the consumer saves Government Budget Deficits – excess of gov’t spending over tax revenues in a given year - Gov’t Budget = Taxes – Spending - Deficit = $/GDP (a % of GDP) Financial crisis – large scale disruption in markets characterized by sharp declines in the prices of assets Stabilization policy – macro policy that aims to minimize business cycle fluctuations Since 2007-’09 the Fed has kept monetary policy “loose” or “quantitative easing” (Ben Bernanke). Kind of a timeline 1. Strong money supply growth and low interest rates 2. Fed Funds Rate increased by .25% in Dec 2015 (Janet Yellen) 3. Sept 2016 change/increase – probably not 4. Dec 2016 change/increase – maybe CHAPTER 2 – MEASURING ECONOMIC DATA National income accounting – measures economic activity and its components Fundamental identity of national income accounting - Total production = total expenditure = total income GDP – (technical definition) the current market value of all final goods and services newly produced in the economy during a fixed period of time (not a used car, because its value was counted in the year it was produced) - GDP = P x Q Not all goods are counted in GDP because they are - Nonmarket goods (household services within a family) - Produced in the underground economy (under the table work) Value added – value of a firm’s output minus the cost of intermediate goods purchased by the firm. By adding up the value added from each firm, we get the final value of the goods/services produced Capital good – used in the production of other goods that is not used up in the stages of production (machinery, classroom, oven) Inventory investment – the change of inventory over a period of time Flow – an amount per unit of time (GDP) Stock – a quantity at a given point in time
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