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Week 1 Class notes

by: Darby-Marie Lasure

Week 1 Class notes Economics 4002.01

Darby-Marie Lasure
GPA 3.7

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About this Document

Notes cover what is on the first quiz, and first midterm on GDP
Intermediate Macroeconomic Theory
Michael Brandl
Class Notes
Macroeconomics, Economics, Theory, Microeconomic, GDP
25 ?




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This 3 page Class Notes was uploaded by Darby-Marie Lasure on Thursday September 8, 2016. The Class Notes belongs to Economics 4002.01 at Ohio State University taught by Michael Brandl in Fall 2016. Since its upload, it has received 10 views. For similar materials see Intermediate Macroeconomic Theory in Economics at Ohio State University.

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Date Created: 09/08/16
Intermediate Macroeconomic Theory 08/25/2016  GDP, most people believe it is increasing and that is a good thing but GDP sucks  ass as something that is relevant to measuring the economy and it takes a while to  actually measure GDP.  Be careful with quarterly GDP data because it is basically a guess as you go and they are  “finalized” a year later.   DO NOT trade on the GDP release, if you do you are a dumbass. The press jumps on a GDP release, but even when it is finalized then it still doesn’t mean anything. There are outliers to the data  Aggregation­ State to state the GDP is different; think about the old people in  Florida and the people in Kansas.  What do increases in GDP mean? Movement from formal to informal economy and quality of the output is not  considered Does more consumption always mean higher standard of living? Buying more antidepressants…  Informal Transaction­ when a service is provided without a transaction  Example: Grandparents watch a child and are not paid  Formal transaction­ when a service is provided and the providers are paid The quality of output does not matter for GDP Technology quality goes up, but prices are going down and consumption is  increasing  Nominal GDP: measured in current market prices, the problem is it doesn't really  show what you want.   Real GDP: measured in constant prices to remove distortion and behavior  Per capita GDP­ output per person Change in real GDP= Change in nominal GDP – Inflation rate Change in real wages= Change in nominal wage – Inflation rate Per capita GDP in America is literally awful; Switzerland has the best per capita GDP  Example: Nominal wage increases by 2% Intermediate Macroeconomic Theory 08/25/2016 The person is happy and they go out and buy a new TV, they increase spending  and consumption. But say inflation was at 3%. So the change in real wage is equal to change in nominal wage – inflation rate. Therefore the change in real wage is  ­1%. So they are losing money, NEVER SETTLE FOR BELOW THE  INFLATION RATE.   Money Illusions­ Agents focus on nominal numbers and not real numbers.  There has been an increase in falling wages in America over the last decade.  How do we measure inflation?  Consumer Price Index or CPI­ a basket full of goods a family of four would buy  or use on a daily basis is priced. This is how we see if prices have gone up. Issues  with this are the urban family of four is pretty hard to come by and other types of  families are more common, like suburban.  Headline CPI v. Core CPI Core excludes food and energy prices, headline is more likely to change quickly.  So always use the core.  Personal consumption expenditures deflator is a better measure because mostly  Economist and bankers use it. Food and energy prices can get super unreliable and move, if you focus on the core you can see where inflation is going.  The PCE is taken monthly opposed to quarterly  Producer price index Monthly measure of price index, came out in 1891 used to be an indicator  of PCI  GDP Deflator­ Only released quarterly Watch out for flaws in preliminary data and be skeptical on non­OECO data You can’t shift the cost to consumer because of foreign companies always competing and then you lose productivity Labor Market data UR= Unemployment rate How did we measure this in the 1930’s?  Employed­ for pay at legal job, and you work at least one hour in the last month.   Early 1930’s with no aid, no food, as long as you worked your hour it didn't  matter  Unemployed­ actively seeking jobs Intermediate Macroeconomic Theory 08/25/2016  Discouraged worker problem­ may stop looking for a job if they can’t find one or  can’t get hired. Because of this the UR can drop, as the economy gets worse and  then go up when an economy is good.  Types of unemployed  Structural­ You work in the textile industry then are trying to get another  job  In IT  Seasonal  Cyclical­ As the economy goes up and down so does the employment  Structural­ parts are destroyed, like in Detroit when trying to get a job in  metal or iron, “rust belt” Labor force participation rate falling is an issue if school is not in labor force Underemployment rate is 17% right now in America UR is historically motivated… “Civilian UR” Jimmy Carter included military members in his UR because of a reelection year Creating jobs just doesn't happen! It is a long process. 


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