Econ221

Alfred Marshall- demand in supply, elasticity, individual decision making

John Maynard Keynes- believed in government intervention, aggregates

prove with facts

opinion, value added judgement

land, labor, capital, entrepreneurship

tools and equipment, machinary

education, experience

(notebook)

other things constant

what goods and services, how are these goods and services produced, who will receive these goods and services

consumption goods and services, capital goods, government goods and exports

capital intestive method, labor intestive method

what-market
how- firm
who- whoever is willing to pay the price

what and how to produce is decided by the economy
who- everyone

do whatever you want but there’s boundaries set by the government

-a model that shows the combinations of two goods a society can produce at full employment
-max combination can be produced at full employment
-the PPL shows the combinations of goods that can be produced
-points under the PPF are attainable but inefficient
-points outside the PPF are unattainable

two goods- consumer goods and capital goods, full employment of resources, technology remains constant, technical know how remains constant, rules of the game remain constant

-land, labor, and capital cannot easily be shifted from producing one good to another
-opportunity cost increases as we specialize

-PPF shifts to the right as an economy grows as a result of -expanding resources, improving technologies
(able to produce more output with the given scarce resources, sustained expansion), labor force increases, new resources are identified, rules of the game are in favor of business sectors
-PPF shifts to the left-decline economic growth (something goes wrong, opposite direction)

absolute advantage and comparative advantage

one country can produce more of a good than other countries

one country’s opportunity cost is lower than another country’s

-measure our nation’s economic performance
-compare US income and output to those of other nations
-track the economy’s condition throughout the business cycle

GDP, unemployment, inflation

GDP

final value of all goods and services produced within the borders of the country during a given period of time
-Bureau of Economic Analysis
-checked every quarter (last is most important)

ones final product is another’s raw product, should be produced in the country, has to be produced in the year

final value of goods

intermediary goods, household productions, used goods are not taken into account, financial transfers

the economy can be measured in two ways (by adding both)
-expenditure approach
-income approach

-householders, firms, government, international trade

GDP= C + I + G + NX

investment in structures, equipment and software purchases, changes in business inventory

-(compensation to employees=wages)+ proprietor income+ corporate profits+ rental income+ net interest+ misc. = national income
-consumption of fixed capital+ statistical discrepancy

take one year as a base year and then calculate the GDP for the rest of the years

current year output * base year prices

current year output * current year prices

real GDP/population

-household productions are not taken into account
-type of good produced doesn’t matter
-environmental effects
-not a true measure of standard of living

-ups and downs of economic activity
-measures how real GDP fluctuates around the potential GDP
-economic fluctuations of the economy
-the periodic fluctuation of economic activity

output produced at full employment

-economy is making more, over-utilizing our resources
-real GDP is greater than potential GDP
-prices go up in the economy

-real GDP starts falling
– National Bureau of Economic Research says the GDP has to fall for at least 6 months to be in recession

economy has hit rock bottom, when there is no more decline in the GDP

real GDP starts going up, unemployment rate starts going down, consumers start spending more

-irregular innovations
-creative destructions- when a new product comes, the old must stop being produced
-changes in the level of spending (most agreed upon)
– durable good industries are most affected by the business cycle (retail)

producing the products the consumer want

householders, firms, no leakages

final goods are sold

raw materials are sold

market value of all goofs and services produced domestically and a brought using resources supplied by US

output an economy can produce after adjusting for consumption for fixed capital used up in the process

GDP- consumption of fixed capital

income earned by the householders

(wages, salaries, and other income)+ rented income+ proprietors income+ transfer of payments+ personal interest and dividends – social security contribution

PI- Personal Taxes
DI= consumption (c) + savings (s)

the great depression

expansions to be longer than recessions

-in charge of calculating unemployment
-takes the current population survey

-employed (full time or part time)
– volunteer work in a family owned business (15 hrs/week)
-unemployed (actively looking for a job for the past 4 weeks )

– less than 16 years old
– homemaker
– retired
-full time students
-discouraged workers
-marginally attached worker

giving up in finding a job because nothing is open in your field

sometime in the past, you were looking for a job, currently not working but are willing to work

working age population * 100

-frictional unemployment or search unemployment
– structional employment or wait unemployment
– cyclical unemployment

able to find a job that matches your still

with your existing skills, you will not be able to find a job, you have to gain other skills

unemployment caused because of the business cycle

-household survey (60,000 houses taken into account)
-payroll survey (400,000 companies & government institutes)

how many employees are fighting for unemployment benefits

non-accelerated inflation rate of unemployment, inflation rate is low at full employment

actual (real) GDP- potential GDP

actual GDP is greater than potential GDP
-current unemployment is below the natural rate of unemployment

actual GDP is less than potential GDP
-current unemployment rate is greater than the natural rate of unemployment

the higher the unemployment, the higher the suffering
-every 1% change in the current unemployment rate over the NRU, GDP gap changes 25

overall increase in prices

-stronger demand for goods or demand full inflation
-hyper inflation
-supply shock on key inputs or cost push inflation
-government printing more money

“too much money chasing too few goods”

overall prices in the economy increases 50% a week

caused because of the increase in the cost of production

combo of inflation and unemployment of inflation and recession

-calculated by BLS
-measures the expenditures patterns of the urban house holders on a fixed market basket of goods
-updated every 3 years
-quantity is fixed but price changes

reductions in consumer demand.

0.6

long; short

increases in aggregate demand.

unemployment is high.

price stability in the long run.

0.8

mandatory

not change

Increasing; increasing; lowering

buy bonds.

false

$250

interest rates will rise.

economic growth with low unemployment and stable prices with moderate long-term interest rates.

$9,000.

regulation on businesses

booms and recessions.

a shift to the right of the SRAS curve

false

false

not change

increases in aggregate demand.

unemployment is high.

price stability in the long run.

increases in aggregate demand.

A. 0.6

fall by $300, and its liabilities fall by $300