Week 1 Chapters 1 2 3 Fall 2011
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Transcript of Week 1 Chapters 1 2 3 Fall 2011
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8/4/2019 Week 1 Chapters 1 2 3 Fall 2011
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Principles of Macroeconomics
ECON 103
Week 1
Introduction
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ECON 103 -- Fall 2011 Stephen M. Miller
Macroeconomics:Flow Chart
Introduction
Macroeconomics:
Short Run
Macroeconomics:
Long Run
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ECON 103 -- Fall 2011 Stephen M. Miller
Art and Science of Economics
Desires and wants
Scarcity
Choice
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ECON 103 -- Fall 2011 Stephen M. Miller
Art and Science of Economics
Opportunity cost
Rational self interest
Marginal decisions
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ECON 103 -- Fall 2011 Stephen M. Miller
Art and Science of Economics
Macroeconomics
Microeconomics
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ECON 103 -- Fall 2011 Stephen M. Miller
Art and Science of Economics
Economic theory
Models
Simplifies
Focuses attention
Testable hypotheses
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Art and Science of Economics
Positive economics
Normative economics
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Art and Science of Economics
Fallacy of Composition
Unintended Consequences
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9/30ECON 103 -- Fall 2011 Stephen M. Miller
Macroeconomics:Flow Chart
Introduction
Demand/SupplyIssues and Tools Measurement
Models
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Macroeconomic Issues
Long-Run Issues Economic growth
Inflation
Government Size
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Macroeconomic Issues
Short-Run Issues Unemployment
Inflation
External balance
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Macroeconomic Tools
Monetary Policy Money stock
Interest rate
Exchange rate
Price level or inflation rate
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Macroeconomic Tools
Fiscal Policy Government purchases and transfer
payments
Taxes
Government budget deficit and debt
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ECON 103 -- Fall 2011 Stephen M. Miller
Macroeconomics:Flow Chart
Introduction
Demand/SupplyIssues and Tools Measurement
Models
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ECON 103 -- Fall 2011 Stephen M. Miller
Macroeconomic Output
Gross Domestic Product (GDP)
Nominal GDP
Real GDP
Implicit price deflator
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ECON 103 -- Fall 2011 Stephen M. Miller
Macroeconomic Output
Circular Flow of Income
Households and businesses
Goods & service and factor markets
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ECON 103 -- Fall 2011 Stephen M. Miller
Circular Flow of Income: I
HouseholdsBusinesses
Goods & Services
Inputs or Factors
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ECON 103 -- Fall 2011 Stephen M. Miller
Circular Flow of Income: II
HouseholdsBusinesses
Goods & Services
Inputs or Factors
C
Leakages Injections
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ECON 103 -- Fall 2011 Stephen M. Miller
Players
Households (C)
Firms (I)
Government (G)
Rest of world (NX = X - M)
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ECON 103 -- Fall 2011 Stephen M. Miller
Macroeconomic Output
Expenditure Definition of GDP
Y = C + I + G + (X M)
Income Definition of GDP
Y = wages & salaries + profits + rents +interest
Value Added Definition of GDP Farmermillerbakergrocerconsumer
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ECON 103 -- Fall 2011 Stephen M. Miller
The Big Equation
Expenditure Definition
Y = C + I + G + (X M)
Household Use of Income
Y = C + S + NT
Equating Two Definitions
C + S + NT = C + I + G + (X M)
S + (NT G) = I + (X M)
S + NT + M = I + G + X
Injections = Leakages
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ECON 103 -- Fall 2011 Stephen M. Miller
Macroeconomics:Flow Chart
Introduction
Demand/SupplyIssues and Tools Measurement
Models
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ECON 103 -- Fall 2011 Stephen M. Miller
Circular Flow and Recession
Accounting Identity and Equilibrium
Desired spending equals production (realGDP)
Desired spending less than production
Inventories accumulate
Layoffs and unemployment
Cut production Falling prices and incomes
Falling desired spending
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Comparative Advantage
Absolute advantage
Comparative advantage
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ECON 103 -- Fall 2011 Stephen M. Miller
Comparative Advantage
Hours Needed to
Make One Item
Amount Produced
in 48 Hours
Bicycles Wheel-barrows
Bicycles Wheel-barrows
Worker #1 6 6 8 8
Worker #2 8 12 6 4
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ECON 103 -- Fall 2011 Stephen M. Miller
Comparative Advantage
Absolute advantage? Worker #1 in both bicycles and wheelbarrows
Comparative advantage
Worker #1 in wheelbarrows
Worker #2 in bicycles
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ECON 103 -- Fall 2011 Stephen M. Miller
Economys Production
Production possibilities frontier (PPF)
Shifts in PPF
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ECON 103 -- Fall 2011 Stephen M. Miller
PPF: Efficiency and Inefficiency
10
20
30
34
43
4850
Consumergoods(millions
ofunitsperyea
r)
100 50403020
Capital goods (millions of units per year)
A
C
D
E
F
B
U
Unattainable
I
Inefficient
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ECON 103 -- Fall 2011 Stephen M. Miller
Shifting PPF
A
A
FF
A
A
FFCapital goods
Consume
rgoods
Consume
rgoods
Capital goods
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ECON 103 Fall 2011 Stephen M Mille
Shifting PPF
A
A
Consu
mergoods
F
A
FFCapital goods
Consumergoods
Capital goods