...Macro Class Notes Chapter 1 Scarcity- when wants exceed our means (productive capacity) Marginal- Extra or additional Marginal Analysis- Additional cost vs. Additional benefit. Capital- (not money) Equipment, Machinery, Factories Economics- the study of how we deal with scarcity Utility- pleasure or satisfaction you get from something Inverse- variables move oppositely Direct- variables move together 4 Resource Categories Land (natural resources) Labor Capital Entrepreneurial Ability (takes initiatives, makes decisions, innovates, and takes risks) Chapter 2 Factors of production = resources Characteristics of Market Economies Private property Freedom of enterprise and choice Self Interest Competition Markets and Prices Market- Institution that brings together buyer and sellers *Money is not a resource. It is a means of exchange. “green" products/companies get their start from government subsidies Demand: buyers inverse relationship btw price and quantity Demand Shifters 1. Change in consumer taste/preferences 2. Change in # of buyers 3. Change in income 1. Normal goods (income ^ demand ^) 2. Inferior goods (income ^ demand goes down) 4. Changes in prices of related goods 3. complements (computers & monitors) as one goes down so does the other 4. Substitutes (chicken & beef) 5. Independent goods 5. Change in consumers’ expectations ...
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...Macro Econoshit Chap 4 Terms | Definitions | Prosperity | The capacity/ availability to satisfy needs by means of products or services | Production | The values added to the process of goods from natural resources. | Production factors | Resources used for production 1. Labor 2. Natural resources 3. Capital | Gross Domestic Products (GDP) | Total production of goods and services within the borders of a country | Comparison of GDP per capita3 steps | 1. Calculate the GDP per capita ( GDP/population) 2. Convert to a common currency 3. Adjust for the differences in the purchasing power of the currency per country | Economic growth | Growth in production | Welfare/well-being | The sense of contentment or satisfaction people in a society have | Human Development Index (HDI) | A metric to determine the welfare of a population | 3 ways to measure production | 1. Production approach: Adding up the total added value of the goods and services of a country 2. Income approach: Adding up all the remuneration for the resource owners in that country 3. Expenditure approach: Adding up all the expenditure of the country | Gross National Income (GNI) | Total production + Total Income | Production factors of capital | 1. Durable capital goods (>1 year) 2. Floating capital goods (<1 year) 3. Consumables (Added during the processes) | Production factors of labor | 1. The size of population 2. Participation rate | Causes of rises in...
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...MACROECONOMICS & THE GLOBAL ECONOMY Instructor SATYENDRA TIMILSINA What is Macroeconomics? • It is that branch of economics, which deals economic affairs at large i.e. total or aggregates • Concerns itself with variables such as – – – – Aggregate output of the economy Extent to which its resources are used Size of National Income General Price Level Introduction • Managers have to deal with economic environment at two levels – micro level and macro level • Micro level includes market structure and the strength of competitors. Firm’s decision making is mostly influenced by the activities of its rival forms. The following are some factors that affect firms decision at micro level – Level of competition – Cost of production and – Product differentiation Introduction • Macro level includes the overall system. This is something that the firm assumes to the given. • Decision making of the firm is affected by the macroeconomic environment. • The following macroeconomic factors have a strong effect on firm’s decision making – Overall Demand – Price Level – Rate of interest – Tax policies and – Exchange Rates Introduction • It is important for managers to know the macroeconomics because an unprecedented change in any of these factors can upset the revenue and cost of the firm, affecting the profitability and returns. • The problem can be minimized or managed if managers know the working of an economy and thereby, judge the...
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...The Nature and Scope of Macroeconomics by Smriti Chand Macro Economics The Nature and Scope of Macroeconomics! Introduction: The term ‘macro’ was first used in economics by Ragner Frisch in 1933. But as a methodological approach to economic problems, it originated with the Mercantilists in the 16th and 17th centuries. They were concerned with the economic system as a whole. In the 18th century, the Physiocrats adopted it in their Table Economies to show the ‘circulation of wealth’ (i.e., the net product) among the three classes represented by farmers, landowners and the sterile class. Malthus, Sismondi and Marx in the 19th century dealt with macroeconomic problems. Walras, Wicksell and Fisher were the modern contributors to the development of macroeconomic analysis before Keynes. Certain economists, like Cassel, Marshall, Pigou, Robertson, Hayek and Hawtrey, developed a theory of money and general prices in the decade following the First World War. But credit goes to Keynes who finally developed a general theory of income, output and employment in the wake of the Great Depression. Contents: Nature of Macroeconomics Difference between Microeconomics and Macroeconomics Dependence of Microeconomic Theory on Macroeconomics Dependence of Macroeconomics on Microeconomic Theory Macro Statics, Macro Dynamics and Comparative Statics Transition from Microeconomics to Macroeconomics Stock and Flow Concepts 1. Nature of Macroeconomics:________________________________________ ...
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...go. This is an economy that relies mainly on market forces to allocate goods and resources and to determine prices. The economic system is free from government intervention such as taxes, tariffs and monopolies. The individual is free to do what they want. Laissez-faire assumed that the individual who pursues his own desires contributes most successfully to society as a whole. An example of Laissez- Faire economy is China, Europe and United States. News paper article: Economic gloom begins to lift in Egypt (Arab News) This news paper article describes the Egyptians economy during and after the ouster of President Hosni Mubarak, and how the economy is improving during this coming year 2012. The Egyptians faced a lot of problems due to the chaos that was going on. Investments stopped for a long time, the official unemployment rate raised to 12.4 percent in mid 2011from 8.9 percent a year ago, poverty became worse, and a drop in tourism by 18 percent. Now the Egyptian economy is starting to recover. It is going to sign a $3.2 billion loan agreement with the International Monetary Fund this month. Telecom Egypt, which has a monopoly on telephone landlines, says it plans capital expenditure of between 1 billion and 1.2 billion Egyptian pounds this year.Moreover, by the end of June Egypt is expected to have a president that is able to make decisions on economic policy. Finally economists predicted that the recovery should be fast and the GDP will grow to 2.7 this current year and...
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...Discuss why you believe that the FOMC has made such a decision, and explain the consequences of such a decision on the economy. In your answer, discuss the Federal Reserve’s use of open-market operations to influence the money supply and the respective consequences of such actions. Include a discussion of the money multiplier effect in your response. Justify your conclusions and provide appropriate examples. I believe that the FOMC has made the decision to slowly decrease the FED purchases to try to decrease the amount of debt the government creates. If they do this then the economy will suffer greatly. By lowering the amount of funds available to companies and people the less money will be spent and the economy will go down. Even by doing this at a slow rate will have a negative effect on the economy, companies will not have the money available to hire employees or be able to keep the ones they have. This will increase the amount of people unemployed. It will also affect the amount of money individuals will be spending. The FOMC buys and sells government securities to set the money supply. The government securities that are used in open market operations are Treasury bills, bonds and notes. If the FOMC wants to increase the money supply in the economy it will buy securities. Conversely, if the FOMC wants to decrease the money supply, it will sell securities. If the FMOC decreases the money supply the economy would be in big trouble. By decreasing the money...
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...Mid-term Review All calculation and example in class is important. Chapter 2 3 Macroeconomic goals Price stability * Inflation rate: 1. GDP deflator Pt=$Yt/Yt 2. CPI: cost of living * Full employment * Growth rate Ways to measure GDP * Final goods * Value added * Income e.g., New tier replace old tier of a used car – final goods GDF count or not? Not count in GDP: Happiness, government transfer, black market transaction, 2nd hand transaction etc. Nominal VS Real GDP (calculation) $Yt=sum PtQt ; Yt=sum P(exogenous)Qt Inflation calculation Pt-Pt-1/Pt-1 CPI VS GDP deflator Y=C+I+G+NX all terms would affect GDP, but only C would affect CPI Unemployment rate U/U+N, where U+N=Labour force Participation rate: L/POP Discouraged labour=out of labour force Chapter3 Two big concept in this chapter Y=Z I=savings Y=Z=C+I+G * C=C0+C1 (Y-T), where C0 is autonomous consumption (>0), C1 is propensity to consume (between 1 and 0) * G and T are exogenous * I has residential and non-residential investments Savings I=savings Private savings + government savings =S + (T-G) S=YD-C=-C0+(1-C1)(Y-T) Chapter 4 Two assets Money Md=$YL(i) Ms (decision of the central bank): a vertical line Bond: affect by interest rate I=(Today price-PB)/PB Thus, PB= today price/(1+i) e.g., Md = Y (0.25-i), Y=100, Ms=20 a. what is i? answer: because Ms =Md, so substitute all the numbers in the eqn, i=15% b. if Y is fixed, whis is Ms? Answer: 10 Graph: LM curve shifts up Chapter 5 IS Curve...
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...Is-Lm, Aggregate Demand and Aggregate Supply Part (A) IS-LM, Aggregate Demand and Aggregate Supply Behavioral Equations, Identities, Equilibrium Conditions and List of Exogenous and Endogenous Variable The IS-LM Model is based upon six Behavioral equations, each describing the determinants of one of the macroeconomic variable considered by the model: 1. Consumption 2. Investment 3. Government spending 4. Tax revenue 5. Money demand 6. Money supply The description of the IS-LM model is completed by three key identities that are defining the links between aggregate demand, aggregate supply and the equilibrium level of income. Aggregate demand: Z = C=I=G --------------------------------1 Since firms produce as many goods and services as demanded in the economy, the aggregate supply is written as: Y=Z --------------------------------2 Combination of the equation 1 and 2 gives income identity for a closed economy Y = C + I + G. This states that in equilibrium aggregate income must be equal to aggregate demand. Exogenous variables: G: Government spending T: Tax on income M: Money supply P: Price level (fixed in the short-run) Endogenous variables: Y: Production C: Consumption I: Investments R: Interest rate Behavior Equations Y= C + I + G C= C0 + Cyd Yd –Cr r I= I0 + Ir r G= G TA = TA + Ty Y LM Behavior Equation L=M L=L0 + LyY – Lr r M=M0/P Production Function Y= Aƒ (K,N) Identities...
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...1. Use the neoclassical theory of distribution to predict the impact of the following events on the real wage and the real rental capital price. (2 points) a. A wave of immigration increases the labor force (assuming capital fixed) Answer; Increase in labor force will decrease labor productivity and real wage. Since more of labor will be used to produce the output than capital, capital productivity increases and its real rental price increases b. An earthquake destroys some of the capital stock (assuming labor fixed) Answer: Decrease in the capital stock decreases the amount of the capital available for production, marginal productivity of the capital increases when the usage of capital decreases and its real rental price increases. c. A. technological advance improves production function Answer: A technological change increases the productivity of labor and capital, since the inputs are paid their respective marginal products, real wage and real rental price of capital increase. 2. Suppose that an economy” production function is Cobb-Douglas with parameter a = 0.3. ( a = parameter α in the textbook) ( 2 points) a. What fraction of income do capital and labor receive? Answer: assuming constant returns to scale and given the size of the a parameter, capital receives 1/3 of the total income while labor receives b= 1- a = 1- 1/3 = 2/3 of income Or 30 percent of the income goes to the capital and 70 percent to...
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...Production & National Income Accounting Principles: GDP is measured using 2 separate approaches: 1) Expenditure approach: the amount of money you pay someone to do a job 2) Factor Income approach: the amount of money someone earn to do a job -Even though they are independent approaches to the measurement of prod., theoretically they are equivalent --> lead to same answer. -Any difference that arises between the 2 approaches is called statistical discrepancy or residual error of estimate= well under 1% of GDP. -to produce a single value for GDP the statistical discrepancy is divided into 2, 1/2 is added to the lower estimate while ther other 1/2 is subtracted from the higher estimate. -measurement of GDP is based on a very simple principle: value of prod. is amount of money you spend to buy it. Conversely, the value of a prod. is the amount of money you were paid to produce it. -to find GDP using expenditure approach: add together total amount of money that is spent by all sectors in the economy to purchase the nation’s production. -There are 4 major components of aggregate expenditure: personal consumption expenditures (C) fixed capital investment expenditures (I) current government expenditures (G) net exports (X-M) Personal consumption expenditure (C): money spent by households to buy newly produced final goods and services such as food, clothing, appliances, shelter, transportation, entertainment, and other household living expenses. Fixed capital investment...
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...Lecture 2: Basic Definitions • • • • GDP Inflation Rate Unemployment Rate Trade and Budget Deficits Gross Domestic Product • First thing we look at (its rate of growth) • Aggregate output: Not easy! – Sum of apples and oranges – Double-counting • Example A Simple Economy • Steel Company – Revenue from sales – Expenses (wages) – Profit $100 80 20 $210 $70 100 • Car Company – Revenue from sales – Expenses • Wages • Steel purchases – Profit 40 • What is this economy’s GDP? Calculating GDP • Method 1: GDP is the value of the final goods and services produced by the economy during a given period • Method 2: GDP is the sum of valued added produced…. • Method 3: GDP is the sum of incomes in the economy... Nominal vs Real GDP • Nominal GDP: sum of final goods produced times their current price – Growth due to quantity (production) – Growth due to prices • Real GDP: … times their base year price • Example (next trp.) • GDP Growth: (Y(t)-Y(t-1))/Y(t-1) Nominal vs Real GDP Year 0 Q Potatoes 100,000 Cars 10 Nominal GDP P $1 $10,000 Value 100,000 100,000 200,000 Year 1 Q Potatoes 100,000 Cars 11 Nominal GDP P $1.2 $10,000 Value 120,000 110,000 230,000 The Inflation Rate • More than one…. (P(t)-P(t-1))/P(t-1) • GDP deflator and CPI • GDP deflator = Nominal GDP / GDP – P0 = 1 – P1 = 230,000/210,000 = 1.1 (approx.) • NGDP growth = GDPg + Inflation (defl) • 15 5 10 • Why do we care? ...
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...TAKE HOME ASSIGNMENT Ukraine Module: Please add Faculty Name Faculty: Please add Faculty Name Due Date: January 5, 2015 Macro Economics: Ukraine 1. Executive summary Geo-political tensions have pushed Ukraine into a deep crisis. Real GDP is in sharp decline, expected to contract by 8% in 2014 with a continued retrenchment in 2015. The conflict in the East has disrupted economic activity, which in its turn made the collection of taxes difficult. The exports have declined and the overall consumer and investor confidence fell significantly. At the same time weak national revenue performance, rising expenditure to tackle the crisis along with a growing Naftogaz deficit make fiscal adjustment more challenging. Ukraine government has allowed a free floating exchange rate resulting in a 50% devaluation of the currency (figure 4). Import gas prices are high and energy efficiency of the national industries is poor. The balance of payments pressure remains high due to large external debt refinancing needs, low FDI and limited access to external financing. This means that challenges are ahead of Ukraine with deteriorating relations with Russia, a weak banking sector, low FX reserves, large debt repayments needs (for the next 2 years) together with constrained domestic consumption altogether pose risks and affect prospects for recovery. Positive factors for Ukraine are as follows: (i) the strong external support for Ukraine ($27bn in the next 2 years), (ii) authorities...
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...(PRSP) "Accelerating Economic Growth and Reducing Poverty: The Road Ahead." Last week the IMF Executive Board endorsed Pakistan's PRSP as a comprehensive and feasible poverty reduction strategy, and a good framework for further reform after the expiration of the Fund program. The Fund staff appreciates this opportunity to comment on Pakistan's economic developments and outlook. 2. The Pakistani economic reform program has been supported by the IMF with a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). This program was approved by the IMF Executive Board in December 2001 and it will be completed in December 2004. Since its approval, seven program reviews have been completed successfully and discussions for the eighth review are scheduled for April. 3. In light of the considerable improvement in economic fundamentals during recent years, the authorities have indicated to us that they will not request a successor arrangement to the current PRGF. This will be a very important milestone for Pakistan following a long history of financial assistancel from the IMF. The authorities should be commended for adhering to their commitments under the PRGF and for the impressive economic achievements. Of course, the IMF will continue to work closely with the Pakistani authorities, but in a different mode. As part of our surveillance mandate, we will offer advice on macroeconomic stabilization and reforms, and particularly on how economic growth could be strengthened...
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...an overview of both the macro and micro-economic factors that drive the pharmaceutical industry with a brief insight into how these levers impact the key players and decisions in the sector. The report will also relate the key drivers of the industry to the pharmaceutical industry in Ireland and how it is facing these global challenges. Historically, the sector was dominated by large scale bulk compound manufacture but this has evolved into a diverse range of complex technologies and treatments. In order to elaborate/detail on how this influences the strategy of individual organisations, we will highlight some of the activities of Glaxo-Smithkline (GSK) and how this company has evolved to adapt to the dynamic nature...
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...ECON 1002 Macroeconomics Suggested answers Tutorial 4 Equilibrium and the Aggregate Expenditures Model In this tutorial we return to Funland (from LA2 in Module 4) and explore the concept of equilibrium with the Aggregate Expenditure model. Please note you will learn this conceptual material by doing it yourself. Copying answers from friends will mean you do not really learn which will then be a big disadvantage for you in the mid-semester test. Suppose that Funland people consume 75 cents for every extra dollar they earn (and conversely save 25 cents for each extra dollar). Assume that autonomous consumption is $200 (i.e. what is spent regardless of income). Assume there is no external sector and no government expenditure yet, so Aggregate Expenditure is just C+I. 1. What is the formula for the consumption function? C = Cauton + ɑ(Y) C = 200 + 0.75Y Assume the Funland Bureau of Statistics employ you as an economist to complete the following table (Table One). They want to model what will happen if there is a planned $100 million of investment injection for that year. Because they know the consumption function they can work out the consumption level at different income levels. Savings can also be calculated because in this simple economy what is not consumed from income Y becomes savings (S). 2. Complete the missing cells in the table. The formula from i. will give you the C numbers. From this you can calculate Aggregate Expenditure You can then deduce S...
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