Econ 102 1st Edition Lecture 11Outline of Last Lecture I. What Causes Technological ProgressI. Economic Growth RatesII. From the Economists Audio AdditionOutline of Current LectureI. Hollowing Out of the Income DistributionII. Skills, Wages and unemployment are all relatedIII. Chapter 9: Aggregate Demand and Aggregate SupplyCurrent LectureI. Hollowing Out of the Income Distributiona. Hollowing Out: people are either moving up getting skills and going into the upper end of the distribution, or they're being forced down to the lower end of the income distributioni. middle area is “hollowing out” II. Skills, Wages and unemployment are all relateda. More education is betterb. “Big Jump” up when you finish a bachelor’s degreei. pays off with $36,000c. It’s not enough just to graduate from college in order to secure agood job- your major matters more than you think!i. Highest paying is Engineeringii. Lowest is “of the Arts”These 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.1. some college degrees dont impact earnings any morethan a high school degree2. www.payscale.com/college-salary-report-2014/major- that-pay-you-backIII. Chapter 9: Aggregate Demand and Aggregate Supplya. Graphs from Lecture 10i. Price level from graph 3 gives you the denominator in graph 2ii. Price level increase, real wage goes down1. Workers negotiate that they will only work more if they are paid more, real wages rise and then back to equilibriumb. Keynesian Model i. What if Price level increases?1. Short run Aggregate supply (pink curve)a. “period before that adjustment”2. Long Run aggregate supply is the blue curve (Classi-cal Model)c. The (Neo) Keynesian Modeli. Fluctuations in the economy can be seen as failure in co-ordinationii. If wages dont adjust “are sticky,” firms overall costs will besticky as welliii. Short run in macroeconomics1. The period of time in which prices do not change or do not change very much.iv. Aggregate demand curve (AD)1. A curve that shows the relationship between the level of prices and the quantity of real GDP de-manded, all other things being equal.2. Recession is pink curve below Y*3. Boom is the pink curve above Y*d. 9.2 Understanding Aggregate Demandi. The components of Aggregate Demandii. Shifting in the Aggregate Demand1. decreases in taxes, increases in government spend-ing, and an increase in the supply of money all shift the aggregate demand curve right. a. Higher taxes, lower government spending, and a lower supply of money shift b. (from Gwen Eudey’s lecture slides)2. Ca- autonomous 3. by- temporary movements in income a. EX: extra semester in school, win lotteryb. b= sensitivity (beta)4. C= Ca +by5. Consumption functiona. The relationship between the level of income and consumer spending. b. College students were surveyed and the ones expecting to make more in the future were spending more while in college6. MPC(marginal propensity to consume) :a. additional consumption/ additional incomeb. with any shift in government spending there is a second shift in consumptioni. “the multiplier” or “the multiplied effect”1. hard to keep up withc. EX: road builders are told by government go-ing to build road next year instead of this year, they have less income this year and thus con-sume less from other producers, keeps going- “ping pong effect”7. The Multipliera. Y = C + I + G + NXi. = Ca + mpcY + I + G + NXii. Y(1=mpc) = {Ca + I + G + NX}a. autonomous component of aggregate expenditures b. its the stuff that shifts Aggre-gate Demand (AD)iii. Total Shift in AD= iv. Y= 1/(1-mpc) {stuff that shifts AD}1. ^multiplier: (1/(1-mpc))2. Mpc is going to be 0 greater than or equal to MPC less than or equal to 13. Bigger fraction Keynesian4. Smaller fraction Classicale. 9.3 Understanding Aggregate Supplyi. Output and prices are determined at the intersection of AD and AS. ii. An increase in aggregate demand leads to a higher price level. 1. Keynesian Viewa. government role for policy- do something to impact
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