ECON 2133 Class Outline 1

ECON 2133 – Class Outline 1

Introduction

ECONOMICS: The study of how people allocate theirlimited resources to try to satisfy their unlimited wants.

Limited resources

versus unlimited wants

implies (economic) scarcity

And scarcity implies that we must make choices

So, Economics is the study of how people make choicesin the context of economic scarcity.

MICROECONOMICS: The study of how households and firmsmake decisions and interact in markets.

MACROECONOMICS: The study of the economy at the aggregate level (i.e., as a whole) including

 Total output of the economy (GDP)

 Employment / unemployment

 Changes in overall price levels (inflation)

 Economic growth, productivity, and living standards

 How govt. actions affect the economy (monetary and fiscal policy)

Chap. 4: Macroeconomic Issues

Econ. Growth: Increasing ______of goods and services by an economy over ______

(i.e., incr. real GDP)

See pgs. 90 – 92 & Fig. 1, p. 91

Living Standards: ______per ______(GDP / population)

Productivity: ______per ______(GDP / # of workers)

Rf. Chap. 8

Employment / Unemployment

Unemployment rate: the ______of the ______not working.

See pgs. 92 – 94 & Fig. 2, p. 93

Short run s in the U rate are largely explained by ______

See pgs. 93 – 94 & Fig. 3, p. 94

Price levels and inflation

Price level (or index): A number that indicates the ______level of prices at a given time, relative to the level at a “______” time

E.g.PLt = 1.2

PLb = 1.0

implies that prices at time t are _____% higher than at time b

Inflation: ______price levels over time

See pgs. 95 – 96 & Fig. 4, p. 95

The study of macroeconomics involves ______

See pgs. 96 - 97

E.g. Y = C + I + G + NX

Marcoeconomic policy: ______actions that affect the economy’s performance over time

 Monetary policy influences the economy’s ______

 Fiscal policy - govt. ______and ______decisions that affect the economy

 Structural policy affects the basic way in which the economy works

Positive analysis studies “what is” and predicts “what will be” under given economic conditions (measurement; scientific analysis)

Normative analysis: “what ought to be”

goes beyond positive anal. to express one’s value judgments

See p. 5 - 6, 98 - 99

Chap. 5 – Basic Macroeconomic Measures

Symbology

___total output of products by an econ. (i.e., gross domestic product - acronym GDP)

___“nominal” GDP

___“real” GDP

___disposable (personal) income

___personal consumption expenditures

___personal saving

___ (or Tx)tax payments or receipts

___capital investment spending

___govt. purchases of goods and services (govt. spending)

___consumer price index

___GDP deflator (a price index)

___annual inflation rate (%)

___unemployment rate (%)

The “Big Three” - Yr, U, 

GDP: the total market value of all final goods and services produced within a nation annually.

 ______products only

 Only ______products

 No purely ______transactions or ______transfers

Study pg. 104 - 107

Three ways to measure GDP:

Expenditures approach

Y = C + I + G + NX

C =

I =

G =

NX =

(NX = Ex - Im)

Ex = exports

Im = imports

See pg. 107 - 113

Practice: Do Pb. 1 (pg. 47 - 48, study. guide)

Factor payments approach

Y = w + i + r + pr + (tx (bus) + kd)

Ynd(net domestic product)

Ynat(national income)

Ypers(personal income)

Disposable (personal) income

Yd = Ypers - Tx

Yd = C + S(“allocations equation”)

See pg. 114 - 116

Value added approach

Y =  value added for all final products (in all stages of their production)

Value added = ______value of a product minus cost of ______inputs (from earlier stages of production) See pg. 114

Real vs. Nominal GDP

Nominal GDP (Yn): the production of products valued at ______prices

Real GDP (Yr): the production of products valued at ______(base year) prices

GDP deflator (Dy): a ______price index that measures changes in ______- ______price levels

See pg. 116 - 117

For any year x

Yr(x) = Yn(x) / [Dy(x) / 100]

E.g.Yn(x) = $8760 bil.

Dy(x) = 102.8

Yr(x) = ______/ [______/ ____ ] = $______bil.