Econ 102 1st Edition Lecture 1 Outline of Last Lecture I. Class Syllabus DetailsII. Review of MicroeconomicsOutline of Current Lecture (Chapter 5)I. Components and Measurement of Aggregate OutputII. Macroeconomic Data: AggregatesIII. Macroeconomic Data: The Circular FlowCurrent LectureI. Components and Measurement of Aggregate Output a. Aggregated: “the Whole economy all added up”i. Decline in manufacturing employee, increase in service employment ii.Society is much more efficientiii. Doesn't say more than micro, just different.iv.Macroeconomics: THE BIG PICTURE, more controversial1. political reasons for controversya. not everyone cares about “the big picture”i. EX: why would a steel manufacturer careabout a field other than their own (such as a farmer)?2. data reasons for controversya. how do we value or add so many different items/servicesThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.i. No longer like microeconomics where there is only “apples” or “oranges” as the supply productii.Workers: Ph.D.’s, no high school diploma b. Now we will be adding items up by Valuei. how much welfare we get from it, how much we’re willing to payii.people disagreeII.Macroeconomic Data: Aggregatesa. GDP: Gross Domestic Producti. is the total output in the economyii.On average, the “stuff/person”1. how much stuff is there to distributeb. Nominal vs Real Variablesi. Nominal: contemporary real-time value in dollars (or euro,etc)1. nominal value of output in one year vs anotherii.Real: Nominal data stripped of the influence of contemporary changes in prices1. comparing 1980 to 2014 need to strip the price change over timeiii. Unemployment: all of those who do not have a job regardless of their qualificationsIII. Macroeconomic Data: The Circular Flowa. Aggregate Production= Aggregate earnings = Aggregate spending b. Supply= Demand at an aggregate levelc. 5.1i. (Gwen Eudey’s Figure from Lecture Notes Chapter 5)ii.Green lines= money$$$iii. Red lines= physical factors of production, intangibleservicesd. 5.2 The Production Approachi. Red and Green lines Related to each otherii.GDP1. total market value of final goods and services produced within an economy in a given year2. EX: Jeep purchased in 2003 not in GDP, but maintenance within the last year is included.iii. Aggregate Expenditures1. goods bought- red arrow flowsiv.Income Paid to factorsv. Intermediate Goodse. Real-Nominal Principlei. what matters to people is the real value of money or income- its purchasing power- not the face value of money or income.ii.Real GDP1. a measure of GDP that controls for changes in pricesiii. Estimating Real GDP (Part 1)1. create a price deflator for every good or service where some recent year is chosen as the “base” of the deflator. a. EX: Applesi. P(apples) in the production year / P(apples) in the base year2. Divide the value of production of each good or service by its deflator before adding the numbers up into real GDP. a. EX (cont): Applesi. Pa (1980) * Qa(1980) / [ Pa(1980)/Pa(base year)]ii.Pa=price of apples, Qa=quantity of applesb. Simplified EXi. Pa(base year) *Qa (1980)ii.done every quarter using the same base yeariv.Estimating Real GDP in Base-Year Prices (Part 2)1. Good aspect:2. Bad aspect:f. Nominal GDPi. the value of GDP in current dollars (at contemporary prices)g. Economic Growthi. sustained increases in the real GDP of an economy over a long period of timeii.Estimating Chain-Weighted GDP (Part 1)1. (nominal GDP)2. Good aspect: a. very easy to introduce new goodsb. relevant to the time period’s taste, 3. Bad aspect:a. not purely growth in quantities, which is what we’d want ideallyb. Chain: related parts, but also price weights that are different, not purely a change in quantities (weakness)c. “general feeling:” more important to get introduction to new goods right, vs the price right.d. Graph from 1930—> 2010 GDPi. (Gwen Eudey’s Figure from Lecture Notes Chapter 5)ii.Will contain obsolete items4. Why does it rise over time?a. More people= more stuffi. maybe put in per capita terms (per personb. technologyi. society is becoming more efficient over timec. IS NOT rising because of inflationi. The Real GDP takes care of inflationii.d. We will spendi. First part of course: trying to explain theriseii.Second part of course: explaining fluctuations in the graphiii. Third part of course: policies that effect the
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