ECN 150: Week 8 & Week 9 Notes
ECN 150: Week 8 & Week 9 Notes ECN 150
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This 5 page Class Notes was uploaded by Alexis Ibarra on Sunday April 3, 2016. The Class Notes belongs to ECN 150 at La Salle University taught by Francis Thomas Mallon in Summer 2015. Since its upload, it has received 13 views. For similar materials see Macroeconomics in Economcs at La Salle University.
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Date Created: 04/03/16
WEEK 8 NOTES 3/14/16 Inflation: The general increase in price levels within the goods and services offered for sale within the nation. Prices of some things are increasing, while prices of other things are decreasing. So we use indexes to assess inflation. CPI is the primary way to identify inflation. Consumer Price Index (CPI): Identifies a typical market basket (what a typical consumer will be purchasing) and uses that to asses inflation On 3/14/16 market basket is $10,000. On 3/13/17 market basket is $11,000. In general, the market basket has increased 10%. Over the past decade, our nation’s inflation has been maintained at or around 2%. It is reasonable. If price levels rise by a reasonable increase, and family’s spending are weakening, the problem isn’t the price levels, it’s the income levels. The income levels aren’t able to keep up with the reasonable price rising. Lorenz Curve: 1000 person population. Take lowest 20% and add their income. 20% of people earn 4% of the income. The next 20% earn 10% of the income. So 40% of the people earn 14% of the total income. The next 20% earn 15%. So now 60% of the people only earn 29% of the total. The lorenz curve shows the inequality. The extremely wealthy (top 20%) are benefitting because the prices for them are only increasing a Little, while their incomes are increasing a lot. Anticipated Inflation vs Unanticipated Inflation (foreseen vs unforeseen) The bank takes a risk by giving loans. The bank deserves a compensation for this risk. The banks also needs to be compensated for inflation so that the money that they are repaid will have equal purchasing power as the money when the lent it out. March madness is coming. You lend your best friend $1000 to get a new TV. A year later, your friend repays you the $1000. When you go to buy the same TV, it now costs $1100. The same amount of money now has a different purchasing power. The lender got stiffed! ****If the actual rate of inflation exceeds the anticipated rate of inflation, the lender loses out, and the borrower makes out! ****If anticipated rate exceeds the actual rate of inflation, the lender benefits and the borrower loses out! _____________________________________________________________________________________ WEEK 9 NOTES 3/21/16 Is the level of GDP being generated by society maintainable? We already know how to calculate it (Expenditure approach or income approach) But is it maintainable? How do we know if it is maintainable? Income Consumption (Spending) Savings 0 100 * 100 80 160 * 80 100 175 * 75 200 250 * 50 400 400 0 600 550 ~ 50 800 700 ~ 100 1000 850 ~ 150 * = dissavings: When the amount that you spend (consumption) exceeds the amount that you made (income) ~ = savings: When the amount that you made (income) exceeds the amount that you spend (consumption) As the level of income increases, so does the level of consumption. The line is a 45ᵒ angle to the horizontal Axis. Every point on this line is at 45ᵒ If the consumption line lies above the 45 line, the vertical distance between the consumption line and the 45 line represents dissavings. Example: If the consumption line lies below the 45 line, the vertical distance between the consumption line and the 45 line represents savings. *Green line =45ᵒ line. The x values=y values ΔC rise ΔConsumption MPC= ΔInc Slope = run = ΔIncome = MPC!! + ΔS MPS= ΔInc ______________ =1 The MPC identifies the slope (rate of change) of our consumption spending line. Example: If the income changes from 100 to 300, and spending thus changes from 175 to 325, then the MPC (ΔC/ΔI) = 150/200= .75. Since MPC + MPS = 1, then the MPS is .25. 3/23/16 Investment: Purchases of new machinery & equipment + Changes in business inventories Planned Investment: Projected or desired amount of [investment] Actual Investment: Actual level realized of [investment] If a business owner if anticipating a growth in demand, they might increase their production so they have more inventory readily available for this anticipated increase in demand. Level of output would increase. Inversely, if a business anticipated a lower level of demand, they will decrease their production and decrease their level of output. Businesses project their level of output on what they see happening in the world (demand increase or decrease) The difference between consumer spending and value of what was produced, represents business’ actual investment spending. .. Actual Investment . Disinvestment . AE= Actual consumption line (C) . Y= 45ᵒ line Slope=Marginal propensity to consume Planned Investment line: (Pg. 853) A Horizontal line represents the planned investment If “I” line is at 25%, add .25 to the C line. C= 850, then C+I= 875 C+I line= Actual consumption + Planned Professor Mallon’s Chart: If C+I line exceeds 45ᵒ line: causes expansion in output production If C+I line is less than 45ᵒ line: causes contraction in output production