ECON 206 T1-T3 Notes
ECON 206 T1-T3 Notes ECON 206
Western Washington University
Popular in Microeconomics
Popular in Department
This 4 page Class Notes was uploaded by Cheylan Harris on Thursday April 2, 2015. The Class Notes belongs to ECON 206 at Western Washington University taught by Sleeman in Spring2015. Since its upload, it has received 119 views.
Reviews for ECON 206 T1-T3 Notes
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 04/02/15
Microeconomics Allan Sleeman Week 1 T1 Introduction A little Macro 1 Syllabus 11 Introduction Economics is a small part of all aspects of our world 0 The physical world the biosphere society III Micro vs Macro Microeconomics deals with individual aspects of the economy 0 Prices and outputs of specific goods and services Macroeconomics deals with the whole of the economy 0 Example rate of economic growth rate of in ation Microeconomics is about the trees and macroeconomics is about the forestquot IV How big is that economy in the window The US has the longest undefended border with miles of ocean on both sides and friendly Canadian and Mexican neighbors The US is largely self sufficient in minerals and may become the next oil exporter V Aggregate Economic Activity AEA Economic activity production exchange and consumption of goods and services AEA measurement of production by the economy in a year 0 Use GDP Gross domestic product to calculate economic activity VI Gross Domestic Product GDP Gross all investment including replacement of worn out or obsolete machines and buildings only new investments would be net national product Domestic all things produced inside US borders as apposed to national product produced by US citizens wherever it is produced Product current production of goods and services GDP is defined by the value market price x quantity or P x Q at market prices only activity that passes through legal markets is included in GDP of all the final this avoids double counting bread example only price of final sale to consumer is used in calculation goods and services produced within the borders or boundaries of a country in a year we also calculate quarterly GDP and extrapolate VII Value Added We can also calculate GDP using value added instead of final sale Bread example 0 Farmer sells wheat for 1 to miller VA 1 0 Miller sells our for 215 to baker VA 115 0 Baker sells bread for 4 to store VA 185 0 Store sells bread for 5 to consumer VA 1 Total 5 Total value added used for GDP but final value is easier to calculate VIII Real vs Nominal Income When calculating GDP for a certain year the nominal GDP would be the market price in 2014 dollars times quantity produced in 2014 Using current prices and quantities gives you nominal GDP GDP can change in 2015 if 0 Prices change 0 Quantity changes 0 Or both To solve this problem we have to keep prices consistent 0 Real GDP accounts for in ation and de ates the change in prices to make it easier to see the change in quantity and overall GDP IX Stocks and Flows GDP and income ow variables 0 They have time dimension and are measured at an annual or quarterly rate Money supply and wealth stock variables 0 No time dimension and size can be determined at a specific point in time X Income vs Wealth Wealth net worth assets liabilities o Wealth has a value and can be calculated at any specific point in time I Stock variable Income 0 Income must be measured over a time period like weeks or months I Flow variable T2 Relative to what Comparing GDPs I How big is the economy really GDP has to be compared to something or it has no meaning A larger GDP doesn t necessarily have a huge impact 0 Could be useful for having a larger defense budget give more to foreign aid research expenditures 0 More money to divide between population 11 Currency Conversion Exchange rate ER method I US ampapan 1 100 1 001 I GDP Japan 700 trillion molt w 7 trillion 0 Problems with ER Method I The ER is determined by trade of each country included in GDP England s trade is only 30 of their GDP so exchange rates only account for 30 of England s economy I Bias ER is determined also by demand of currencies 0 ER of an LDC less developed country may be lower than a developed country which overvalues the ER of the developed country and undervalues the ER of the LDC Purchasing Power Parities PPPs 0 Big Mac 4 in New York R8 in Moscow 1 R2 haircut 1b Pf r199 Identical goods in P311 Ofleans each country gal of gas US Japan 30 for all goods 4500 0 1 150 0 GDP ofIapan 700 trillion 47 trillion using PPP I 7 trillion using ER 111 Aggregate Economic Welfare AEW measurement of standard of living of a population T3 GDP is not a measure of AEW IProblems with GDP Income distribution Leisure Environmental resourse depletion Infanstructire Literacy amp education Health amp longevity Levels of violence Good goverance Human rights Rule of law Status of women 0 GDP P X Q I Price determined at the margin Ex first piece of pizza gives more satisfaction that the ones that follow but the price of the last one goes towards GDP 0 Ifyou have 10 slices at 3 30 goes towards GDP but satisfaction or welfare is much more than that Welfare GDP