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ECON CHAPTER 1 lecture and Recitation notes

by: Lyric Jamerson

ECON CHAPTER 1 lecture and Recitation notes ECON 204

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Lyric Jamerson
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About this Document

These notes cover important information for chapter 1 and some review for chapter one covered in recitation for the first week of classes.
Principles of Macroeconomics (GT-SS1)
Steven J Shulman
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This 7 page Class Notes was uploaded by Lyric Jamerson on Tuesday September 6, 2016. The Class Notes belongs to ECON 204 at Colorado State University taught by Steven J Shulman in Fall 2016. Since its upload, it has received 3 views.


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Date Created: 09/06/16
Thurs. 8/25/16 Thursday, August 25, 2016 12:56 PM What Is Macroeconomics?  Microeconomics: the study of individual markets & individual economic behavior  Macroeconomics: the study of all markets taken together & aggregate economic behavior  Measurement & analysis of the national economy  Explanation of economic growth  Analysis of inflation & unemployment  Debates about economic policies o Fiscal policies o Monetary policies o Trade policies  Macroeconomic Models  Theoretical economics – formal expression of economic ideas  Expressed mathematically as relationships among variables o Just functions, algebra & graphs for our purposes o Precise & logical o Necessarily simplified  Example: consumer spending = f(disposable income)  Empirical economics – test of economic theories  Factual o Can look up and observe them  Can every single point be right on the line  No  The points go on either side of the line but correspond to the line  Need Data to test the theory  Cant conduct controlled experiments  Big stew with everything cooking at the same time  Data  Statistical models Why economists disagree  A lot of grey area  A lot of debate  Cant open up a persons mind and see what they are going to do  Inability to conduct controlled experiments in social sciences  Different theoretical models, data sets & statistical models  Different values & politics o About government policy to control economic growth  Government = politics  Macroeconomics & Politics Macroeconomics always involves questions of the role of government  In particular, what are the right policies to pursue?  In general, what is the right size for government? ConservativLiberal e Economics Economics (the (the “Keynesia “classical n model”) model”) Markets Usually Frequent efficient & market equitable failures Governme Best if small Best if large nt & passive & active Primary Individual Social well- Value freedom being  These debates persist because the evidence is complicated. Both sides can tell a convincing story.  It’s possible & even likely to have conservative views of some issues & liberal views of other issues  You have to think through your own opinion! GDP  Definition & measurement of GDP  Is not a thing. It's an activity  How much it takes a year  GDP as a simple circular flow  Per capita GDP & living standards  Income distribution  Productivity growth  Gross domestic product (GDP) is the total market value of all final goods & services produced within a nation’s borders in a given time period.  All of it taken together  Total market value  Add everything up with dollars  Environmental problems  Want to look at both sides of the picture  Want net measurements  Like economic statistics  Have a lot of debate on how accurate the measurements are.  Final goods are not used in the production of other goods (called intermediate goods). They have reached their final destination.  Double count if needed for intermediate goods  Not just physical things  4/5ths is services for jobs in the united states  Manufacturing 1/5th  Our people  Things in other countries do not count even though they started in the US  Only US things count  Three equivalent measurements of GDP  All transactions  Commodity  Has to be equal to both spending and income  The price that it got sold at  Total production  What's their value  What they got sold for.  Total spending  buying  Total income  selling  GDP makes it possible to compare the size of different national economies. 2014 GDP, Top Ten Countries  Actually not that long ago that japan and Germany were obliterated  US is more than China  They are in top ten but way way way smaller GDP as a Simple Circular Flow  No bank  No government  Households and a business sector  Markets connect them  From household to firms o Factor markets  Land  Labor o Firms  Prodice goods and services  Then go to the markets for goods and services  Buy back the goods and services  Green arrow  Income (right side)  Spending (left side)  Goods and services (yellow arrow) o production  Simple circular flow ignores government, finance & other countries.  GDP as a flow of dollars (outer loop)  Dollars into households are income (wages, rent, profits, interest)  Dollars out of households are expenditures (consumption) o Income and spending feed each other  GDP as a flow of goods & services (inner loop)  Households receive income from firms in return for producing output  Value of output = expenditures = income  Underlying principle of the circular flow: dollar inflows into each sector must equal dollar outflows from each sector.  Spending & income depend upon each other  ∆spending _ ∆income _ ∆spending _ ∆income … What is Left Out of GDP  Intermediate goods & services (inputs)  Used goods  Financial assets  Foreign produced goods & services  Services that are not priced, e.g., housework  Illegal goods & services Friday 8/26/2016 Recitation: Friday, August 26, 2016 12:57 PM Office hours: Tuesday 10-11 Friday 10-11 and 1:50-2:50 Clark c301 Email: 1. 3 points for every question answered  GDP: o Total Market-value of goods and services within a nation's border, during a given period of time  Total  A number  Market value  Goods and services  Real goods and service  Nations border  No imported goods or services  Actually subtract them  During a given period  Only during a certain time frame  Monthly  Quarterly  Annually  GDP per capita o GDP/ population  Standard of living for a country  Only if Income distribution is equal  Income Distribution o 20% , in order o Five 20% of the population (higher, lower, middle and in between)  Us richest 20% 51  2nd 20% 23  3rd 20% 14.4  4th 20% 8.4  Lowest 20% 3.2


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