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Class Notes Lecture one Macro Theory

by: Darby-Marie Lasure

Class Notes Lecture one Macro Theory Economics 4002.01

Marketplace > Ohio State University > Economics > Economics 4002.01 > Class Notes Lecture one Macro Theory
Darby-Marie Lasure
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Class notes, will be on the first midterm
Intermediate Macroeconomic Theory
Michael Brandl
Class Notes
Macroeconomics, GDP, Microeconomic, Microeconomics
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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 7 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 8/23/2016  GDP (Gross Domestic Product)­ How much stuff does the economy produce in a  given period. This can be quarterly or annually.  “One persons spending is another persons income”, kind of obvious but a good way to think about how spending works.   Example: You go to a farmers market and buy apples from a  farmer, that money you spent is the farmer’s income for that day.  There are two different methods for calculating GDP These are expenditure method and income methods.   Income method­ depreciates capital expenditures and this depreciation rate is  determined by the IRS when taxing, this method is also extremely hard to figure  out. You have to avoid double counting and you can’t use all of spending.  GDP= ONLY= Final goods and services NOT intermediate goods.   Example: You have a table. The manufacturers buy oil, wood,  steel, and more building products but none of them are included in  GDP.  Hint: Do not include all transactions, because everything is included at the end  when the product is sold.  Final goods and services that are measured in current prices are a better way to  value GDP. Does not include sales or production of used goods  Example: You buy a 2008 Toyota this is not counted in 2016 GDP; it was counted in the 2008 GDP when the first owner bought it.  The first attempt to look at how well the economy was doing was made around  1920; there were no previous estimates of how well the economy was doing until  then. GDP EQUATION: GDP= C+I+G+(X­I) or consumption + Investments + Government Spending + (Imports­Exports).  Consumption­ Household spending on final goods and services, this encompasses  2/3 of GDP. We always have to be worried about households and how they are spending. Why and when do they spend? Driven by income? Disposable income? Consumption is not increasing like it should be.  In 2008 there was increasing awareness of peoples credit being dried up and gone, people were in so much debt that they couldn't get out without a loan. Intermediate Macroeconomic Theory 8/23/2016 “I can’t consume” Shit.  CONSUMPTION EQUATION:  C=A + MD or Consumption=  Autonomous consumption + Marginal propensity to consume * Real disposable income Why is it that we are worried about the economy? Disposable income = Consumption – Savings  Investments­ Not in the finances terms, but “Business Investment Spending”, or  businesses capital expenditures, this is not a stock investment.  Investments make up 15% of GDP, so super small. It also varies dramatically and  makes huge swings from quarter to quarter, that's why we can’t really rely on  GDP as a measure.  Government Spending­ Only on final goods and services, not all spending by the  government is that.   Example: Food stamps and SSC are not in GDP!   (X­I) or Exports – Imports­ self explanatory, exports are made here but not  consumed here, and imports are not made here but consumed here.  PLEASE don’t think that you can just increase exports, because you  can’t. Mathematically it works, but it does not work with the whole  equation in action, there are give and takes everywhere in economics.  Prices and Price levels  movement of overall prices “Gasoline went up, this means inflation” … no “Inflation is destructive so we need to produce more” … no  Inflation­ Slowly kills the economy  Deflation­ Deadly to the economy, debt goes way up Firms will not borrow because they can’t pay back this means they also  will not spend, but this means the entire economy will go to hell in a hand  basket.  Intermediate Macroeconomic Theory 8/23/2016  Example: You borrow $100 and your wage is $10 an hour, it will  take you 10 hours to pay off this loan. But if you borrowed $100  and your same wage is equivalent of $5 per hour, it will take you  20 hours to pay off this debt now. Economic Recessions­ decrease in real level of output Economic Depressions­ no formal form of a definition, but this decrease occurs over  years and takes a very long time to recover.   They are not that unusual   They occur about once every 50 years, normally preceded by deflation  There has been no depression since the 1930’s  This is not a sine wave and does not behave like the business cycle, it is  not correlated to anything  Forecasting a depression is not a thing  It is followed by decades of growth and a long­term increase in the health  of the economy.   Fiscal policy ­ Government spending and taxing to stimulate the economy  Monetary policy­ Changes in the money itself


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