Week 1 Notes (9/28-9/30)
Week 1 Notes (9/28-9/30) ECON 1b
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This 5 page Class Notes was uploaded by Olga Lukashina on Friday October 2, 2015. The Class Notes belongs to ECON 1b at University of California - Davis taught by Bagher Modjtahedi in Fall 2015. Since its upload, it has received 212 views. For similar materials see Principles of Macroeconomics in Economcs at University of California - Davis.
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Date Created: 10/02/15
Lecture 1 092815 Great Depressionl9293 9 0 Long and deep recession 0 Industrial production and national income down by 50 0 Income and manufacturing down by 70 construction by 88 Farm income down 50one of the main problems 0 Unemployment 24many part time jobs Asset values plummeted 0 Banking system on verge of collapse 0 Princes declined by 35Horrible thing It is called de ation At the time policy makers were faced with two related problems 1 Theory they did not know the causes of the problems the country faced Very many questions that didnt have anwers 2 Measurement they did not have any data and did not know the magnitude of the problem Two things came of Great Depression 1 John Maynard Keynes provided first theory and what is going on Led to the development of macroeconomics 2 Simon Kuznets developed Gross Domestic Productmost important statistic in economics Objective of GDP Policy makers want to have an idea about the amount of all goods and services proudced by the domestic factors of production in the country usually over a year Why do we care about Gross Domestic Product 1 Effect of production on Employment If we produce more stuff we will not necessarily increase employment Innovations and technology increase production However it could possibly lead increase labor 0 Labor is measured in Person Hours 2 Effect on Income 0 More production means more income 3 Effects on standard of living 0 standard of living means qualities of goods and services we consume more production increases standard of living Definition of GDP Total market value of all the final goods and services produced by the factors of production located in a country during a certain GDPP1Q1P2Q2P3Q3 EXAMPLE Q 1 l 0 pounds Q24 Pl2pound Pl100 2101004420GDP Why multiply by price If we just want to know the quanitity Same units We can only add in dollars What does quot nal goodsquot mean Goods that are sold to nal consumer 0 We want to include all the goods and services produced but only ONCE Why don 39t we count intermediate goods Everything has to be counted once Prince of nal good is the sum of all the intermediate goods The nal price already includes the value of intermediate good What do we count quotservicesquot Services need to be counted because they increase standard of living income and employment What does quotproducedquot mean Everything we produce goes into GDP 0 The only thing that goes into the year39s GDP is what was produced that same year Only goods produced in 2015 will go into 2015 0 Only count NEW production Do not include second hand goods because they don39t increase employment 0 Pro t goes into GDP Asset transfers do not go into GDP 0 nothing new was produced When you buy stock of coorportation you are buying a piece of coorporation so it doesn39t go into the GDPnothing new is produced What is capital gain Lets pretend you buy something for 10 sell for 11 That 1 dollar pro t is a capital gain What are the Factors of production 0 land labor and capital What does quotlocated in a countryquot mean Nationality of the factors is not important It doesn39t matter who owns the labor or capital All that matters is land locationphysically Should we count the imports 0 Imports DO NOT count 0 Always subract imports What is defined as quotcertain period of timequot 0 production takes time 0 In this class it will always be 1 year Why are individuals and companies di erent Homemade products do not generate income However even if companies do not sell their product they generate income pay workers Flow variablewe need a time frame to measure EX income per year Stock variablewe can measure at one time EX savings in a bank account Summary What is excluded om GDP 1 Imports 2 Second Hand Goods 3 Asset transfers 4 Capital gains and losses 5 Household non market activities 6 Illegal activities Lecture 2 093015 GDP also Equals Total Expenditure 0 amount of money people spend on goods and services people spendtotal production What happens to the services produced SOLD NOT SOLD Firms Counts in at market price Counts in at market price because the producer himself buys Households Counts in at market price DOES NOT COUNT IN GDP Government Included in GDP at cost of providing the services no market Government buys the produced services Who buys the goods and services produced Households Firms Government Foreign Countries 0 4 categories because everyone buys for different reasons Final GoodIntermediate GoodValue Added Value AddedWageInterestRentProfit Value Added does not equal Pro t GDP Also Equals Total Income Generated in Economy everyone in the society adds value to the things they buy GDPsum of all values added in the economy Price increases because production cost is higher GDPvalue of productiontotal expendituretotal factor income HOWEVER GDP is only good for one year thus it is useless Numbers in GDP are contaminated by price 0 we cannot tell if prices went up or we increased production For this we have two di erent types of GDP 1 Nominal GDPName only Unimportant contaminated with price 2 Real GDPquantity Calculated at xed prices Fixed prices are at Base Year Base year Nominal GDPReal GDP Economic Growth Long term increase in Real GDP Business Cycles Ups and Downs in GDP The objective of macroeconomics is to analyze economic growth and cycles FREDFederal Reserve Economic Data Price Indexnominal GDPreal GDP EXAMPLE 205pizzas100 20 is the price 5 pizzas is the real GDP quantity 100 is the nominal GDP Nominal thing price real thing nominal GDP GDP de ator real GDP GDP de ator nominal GDPreal GDP In published data multiply nal result by 100 GDP de ator is the average price of all the goods that are in the GPD 0 Not a good indicator of cost of living 0 It includes things we don39t buy 0 It excludes things we do buy Is GDP a good indicator of the welfare happiness of the nation Real GDP is more relevant to wellbeing Real GDP per capita is better Silent about distribution of GDP Includes things we don39t buy Exclude things we do consume imports quotBadsquot are not accounted for Intangibles not included IONUIwaH Consumer Price Indexindicator of cost of living Analysts chose the goods that an average household would buy They they gured out the average price of those goods CPI is used to calculate de ation CPIpricequality of goods one year pricequality during chosen years GDPPQ thus growth rate of GDPgrowth rate of pricegrowth rate of quanity
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