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Macroeconomics Notes Week 1 and Week 2

by: Winston

Macroeconomics Notes Week 1 and Week 2 ECON 2013

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everything discussed in class the first two weeks
Class Notes
Econ, Economics, Macro, Macroeconomics
25 ?




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This 9 page Class Notes was uploaded by Winston on Wednesday September 14, 2016. The Class Notes belongs to ECON 2013 at University of Arkansas taught by Stapp in Fall 2016. Since its upload, it has received 2 views.


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Date Created: 09/14/16
NOTES FROM CLASS 1. Basis Point ­ one one­hundredth (1/100) of a percent (%) 2. Janet Yellen speech a. Friday 08/26/16 3. P.A.P. a. Process b. Answer c. Presentation  4. Elections have been about econ since 1932 with exception of 1944, 1964, 1968, 2000,  2004 a. 1968 comparable to 2016 i. Unrest  5. People vote what they like ­ might be change, might be same ­­­ change happens when  people are dissatisfied 6. Legacy Costs a. Ongoing costs with no benefit to employer ­ AFFECT REAL UNEMPLOYMENT i. Retirement ii. Social Security iii. Pensions iv. Healthcare 1. Employer must provide if they have over 50 employees a. Leads to contract work 7. What is the economy? a. Economy = Domestic Sector + Foreign Sector i. Defined later in notes b. Consumption i. Spending  ii. Personal c. Government d. Business  i. Investment  e. Imports f. Exports 8. Liberal economist ­ economy cycle starts with spending, product is built or not built  based on demand 9. Conservative economist  a. Economic cycle starts with supply, i. work>pay>spend>employment 10. ANALYZE TRENDS a. Snapshots lie i. Look at the trending direction 1. TREND IS ALWAYS MORE IMPORTANT THAN SIZE b. Value of a dollar changes over time  i. Not always down, but trend is generally down 11. rGDP a. Real Gross Domestic Product i. Accounts for inflation 12. GDP a. Gross Domestic Product i. Doesn’t account for inflation 13. Money multiplier: money is multiplied in the economy because of people's tendency to  spend when they have income or income increases a. Ex: $4 becomes $10  i. $4 is spent on a water bottle 1. $3 of that is spent on a pen a. $2 of that is spent on notes i. $1 of that is spent on an empty water bottle 1. Money multiplier would be 2.5 14. Want more from producers? a. Businesses keep profits in foreign economies to pay less in taxes i. Keep investing that money in foreign business  b. Offer incentives i. Tax breaks 1. Texas has 0% income tax 2. New York has low corporate tax rate 15. CELL a. Employment  i. Capital ii. Entrepreneur iii. Land iv. Labor 16. Capacity Utilization Rate (CUR)  a. Percentage (%) of capacity utilized 17. Slack Capacity a. Percentage (%) less than 100% of capacity utilization rate 18. Most sensitive price a. Gas i. Effects American middle class 19. Liberal economics a. Government always trying to find a solution 20. Conservative economics a. It’ll work itself out 21. Monetist economics (monetarism) a. Constant cash flow will keep economy afloat 22. What’s the most counterfeited bill?  a. $20 23. Prices change a. Surplus ­ prices go down, value of dollar increases b. Shortage ­ prices go up, value of dollar decreases 24. Final good a. Completely ready for sale 25. Intermediate good a. Product is not finished 26. Illegal goods and services  a. Make up underground economy b. “Don’t know how much they are” c. Largest cash crop in Oklahoma (OK) is marijuana 27. Voluntary services are not included in GNP 28. Gross National Product (GNP) a. Total dollar value of all final legal goods and services exchanged (sold) in the  marketplace over a period of time (quarterly or yearly usually) b. (GNP) = C + I + G + (X ­ M) 1. C ­ Consumption ­ individual  2. I ­ Investment ­ business 3. G ­ Government ­ state, local, national 4. X ­ Exports 5. M ­ Imports ii. Private sector = C + I iii. Domestic sector = C + I + G  iv. Public sector = G (state, local, national) v. Foreign sector = (X ­ M) 29. Typical car factor assembly line is 21 miles 30. Decreasing money supply(ms) a. Increases interest rates(ir) i. Money becomes more expensive to borrow because there is less of it in  the market 31. Increasing money supply a. Decreases interest rates i. Money becomes cheaper to borrow because there is more of it in the  market 32. Interest rate on mortgage is the biggest part of the loan a. Made to payback for inflation and a profit 33. Many believe The Fed caused the Great Depression of the 1930s and the massive  inflation seen in the 1970s through their policies at the time 34. Interest rates being low might stimulate consumption a. But it KILLS savings i. No point in saving money when you get 0.01% interest at the bank 35. Dove a. Believes there’s no inflation  i. Might even need to lower interest rates 36. Hawk a. Believes inflation is a problem i. Always fighting 1. Wants to increase interest rates 37. Increase in money supply a. Goal is to increase in i. Consumption  ii. Investments 1. Commodities 2. Real estate 3. Currencies 4. Collectables 5. Debt market 6. Stock market 38. Rule of 72 a. Investment(n) multiplied by interest rate(ir) is about 72 i. (n)x(r)=72 1. How long does it take to double the price(investment) at 2%  inflation(interest)  a. (n)x(2)=72 i. (n)=36 1. 36 years 39. Highest inflation ever? a. Germany after WWI i. Upwards of 10,000% 1. Price doubles every 2.626 days 40. Oil price is quoted in United States Dollars (U.S.D.) a. Inflation increases = money supply decrease = value of U.S.D. increases = price  of oil (Poil) decreases i. Money supply(ms) decreases because the money becomes worth less  with the higher inflation ii. Value of U.S.D. increases because there are fewer on the market iii. Price of oil(Poil) decreases because the U.S.D. is worth more  internationally  1. With higher interest rates, the demand to invest in the U.S.  increases a. Have to pay in U.S.D.  i. More demand for U.S.D. 41. Big drops happen in the stock market in October a. September is the worst month for stocks i. Anticipation  42. Bubble economy a. Bases around stock market and real estate both increasing as the money supply  increases 43. Stanley Fischer a. Vice chair of The Fed b. BIG hawk 44. Active meeting a. The Fed will be talking about interest rates at this meeting 45. Unemployment rate a. UR 46. Doubling a penny each day in a 31­day month turns $0.01 on day one into  $10,737,418.24 on day 31 47. People take more risk with investments when interest rates are low a. Risk can lead to failure 48. Look up the U6 unemployment rate a.­unemployment­rate  b. Most accurate i. Accounts for underemployed 49. Macroeconomic Goals of the United States  a. Set after WWII b. U.S. was only functioning, large scale economy i. Stable prices 1. About 2% inflation ii. Full employment 1. UR at about 5% iii. Steady economic growth 1. Avoid highs and lows of the cycle with regulation iv. Favorable balance of trade 1. Export more than imported i. Trade surplus b. The U.S. has imported more than exported for some time  now (“most of your lives” ­ about 18 years) i. This is called a trade deficit  v. Equitable distribution of income 1. Not 1% controlling 99% 2. Not everyone the same 50. Indicators of the economy  a. Non­farm payroll i. Everyone who doesn't work on a farm 1. Released monthly a. Estimated (usually about 187K) i. If around estimate, nothing really happens ii. If below estimate, “doves” speak up iii. If above estimate, “hawks” speak up b. Unemployment rate i. “Want a job and don’t have one” 1. Released monthly a. Estimated (usually about 4.8%) i. If around estimate, nothing really happens ii. If below estimate, “doves” speak up iii. If above estimate, “hawks” speak up c. Average hourly wage i. Average wage of hourly workers (approx. 100M in U.S.) 1. Estimated (to go up or down in % ­ August est. = increase 0.2%) a. If around estimate, nothing really happens b. If below estimate, “doves” speak up c. If above estimate, “hawks” speak up 51. The symbol of pi is used to represent price in economic symbols 52. Spending = income = value of production 53. The backbone of any advanced economy is the domestic consumer a. The United States is the backbone of the world economic system i. The middle class (domestic consumer) is the backbone of the United  States economy 1. The middle class of the United States is the backbone of the world economic system 54. G7 Countries  a. an informal bloc of industrialized democracies that meets annually to discuss  issues such as: i. global economic governance ii. international security iii. energy policy 1. United States 2. Japan 3. Germany 4. Great Britain  5. Canada 6. France 7. Italy  55. BRIC Countries a. Countries which are which are all deemed to be at a similar stage of newly  advanced economic development i. Great Britain ii. Russia iii. Indonesia iv. China   56. PIIGS Countries a. five Eurozone nations that were considered weaker economically following the  financial crisis i. Portugal ii. Italy iii. Ireland iv. Greece v. Spain 57. Y = cash purchases 58. Lowercase cursive “i” = interest 59. Nondurable goods a. Food b. Short term i. Events 1. Concerts c. As income increases, consumption of nondurable goods increases d. Most consumer’s “budget” is spent here 60. Durable goods a. Long term i. “Long term economic benefit” b. “Big ticket items” i. Most people don’t pay cash  1. Borrow and make payments with interest c. Lasts longer than 2 years i. Cars ii. Houses iii. Furniture 61. Elvis Presley gave away 9 Cadillacs 62. Loan  a. Borrowing money, pay back principal with interest 63. Interest rate(ir) a. Price you’re paying to access your future income today  64. Capital symbol in economics = “K” a. Das Kapital i. Karl Marx 65. Depreciation   a. Losing value b. Capital consumption allowance (CCA) i. Amount that K goods depreciate 66. Boeing Assembly Plant a. Everett, Washington i. Largest factory in the world 1. Had to account for the curvature of the earth when building 2. Concrete is as thick as on runways a. No heating or air conditioning i. Concrete keeps it cool in the summer and warm in  the winter 67. To get money to pay for a big project, businesses can a. Sell Stock (Equity) i. Pro ­ does not introduce any costs ii. Con ­ devalues current stock b. Borrow it (Debt) ­ commercial paper i. Pro ­ doesn’t hurt stock price ii. Con ­ have to pay back with interest c. RE ­ reinvesting profits i. Pro ­ doesn’t hurt stock, doesn’t introduce costs ii. Con ­ can take a LONG time to raise funds, can’t pay a dividend 68. Business a. Revenue comes in b. Expenses go out c. Profit is taxed 69. Depreciation = CCA  a. CCA artificially increases expenses i. Lowers profit 1. Lowers taxes paid NOTES FROM E.S.I. 70. GDP a. Real GDP ­ accounts for price changes while Nominal GDP does not  b. GDP contains all real goods c. Must be produced domestically d. GNP would not count Toyota spending in the U.S. i. GDP does, but does not count for U.S. companies spending in Japan  while GNP would e. Net Investment Income (NII)  i. U.S. income earned overseas ii. Not counted into GDP f. GDP = C+I+G+(x­m)­NII 71. Net National Product (NNP) a. Same as GNP except the depreciation of capital goods is accounted for  b. NNP = GNP ­ CCA (capital consumption adjustment) 72. Consumer goods a. Nondurable good (y) i. Soft goods ii. Goods that don't last 1. food, drinks, clothes iii. C = (i+y)  b. Durable goods (i) i. Cars, washing machines, jewelry  c. Capital goods  i. Durable items, separate from durable goods ii. Machinery  iii. Have depreciation 1. Life expectancy  73. Business cycle (short run) a. Recession > expansion > recession > expansion 74. Consumer Price Index (CPI) a. Measure of overall cost of goods and services bought by a typical consumer b. CPI = (price of goods and services in current year / price of basket in base year) x 100 i. Substitutions  1. Different brand  ii. Unmeasured quality change 75. Stapp facts a. Write down everything b. Dow Jones was at all time high c. Last December the fed raised interest rates by 25 basis points (0.25%) d. Since 1932 economics has been a big part of politics  e. Jimmy Carter made the misery index = inflation rate (ir) + unemployment (u) f. “IT’S THE ECONOMY STUPID” ­ Bill Clinton g. Social security started in great depression (FDR New Deal) h. State income tax in Texas is 0% i. Al Capone was arrested because of tax evasion j. Marijuana is the #1 cash crop in Oklahoma k. Temperature for a city is taken at the airport Hi Class! I'm an Elite Notetaker for StudySoup which means I'll be uploading detailed notes for this class all semester for anyone who needs it. I just uploaded my first set of notes. If you sign-up right now you can get them for FREE, and you'll get updates when I post new materials: hope this helps! Winston


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