Monday, February 2, 2015

Unit 2

January 27, 2015
       
      Gross Domestic Product (GDP)
-          Total dollar value of all goods and services, produced within a countries borders, and within a given year
-          EX. If I was a citizen in Bangladesh Countries GDP and on GNP
·         Gross National Product (GNP)
-          Total value of all final goods and services, produced by Americans in a year
-          EX. Work in Bangladesh but citizen of America, where ever I work is put into the GNP
·         Gross Domestic Product
-          Included in GDP
Ø  Formula (C + Ig + G + Xn)
Ø  C-Consumption
o   67% of our money of the economy  - (must be final good or service)
Ø  Ig Gross Private Domestic Investment
- Factory Equipment Maintenance 
- New factory equipment
- Construction or housing
- Unsold Inventory of products built in a year (GDP 2014)
Ø  G- Government Spending
Ø  Xn- Net exports
Exports – Imports
-          Whats not included in GDP
Ø  Non-market activities (volunteering, family work, illegal drugs)
Ø  Intermediate goods- goods and services that are sold for resale or in further process (Making into a good)
     o   *Avoid Double and Multiple counting*
Ø  Used or second goods
     o   Ex. Thrift store counted 5 years ago, car 2003 sold for 2015.
Ø  Financial transaction- Stocks, bonds, real-estate
Ø  Gifts or Transfer Payments
     o   Public- Recipients contribute nothing to the current production (Ex. Welfare payments, Social Security)
     o   Private- produce no output this is where you transfer funds one private individual to another ( Ex. Scholarship)

January 28, 2015

Calculate GDP
-          Expenditure Approach
-          Add up the market value of all expected expenditure
-          C+Ig+ G+ Xn = GDP
-          Add up all the income earned by households and firms in a single year
-          Income Approach
-          W+R+I+P+ Statistical
-          Wages rents interest profit (Properties income)
-          GDP must equal the income
-          Formulas
      -          Budget
             o   Government purchases of goods and services + Transfer Payments – Government tax and fee collection
             o   If your number is positive it’s a deficit if it is negative its surplus
     -          Trade
             o   Export- Imports
     -          GNP
             o   GDP + Net Foreign factor payment
     -          NNP (Net national Product)
             o   GNP-Depreciation
     -          NDP (Net domestic product
            o   GDP-Depreciation 
     -          National Income
            o   Either one
                §  GDP – Indirect business taxes- Depreciation – fact foreign payments
                §  Compensation of employees + rental income + interest income + proprietors income + corporate income
    -          Disposable Personal Income
           o   National income – personal household taxes + government transfer payments

January 29, 2015 

  Ø  Nominal GDP
-          Value of output produced by current prices.
-          Nominal price x quantity
-          Can increase year to year if either output or price increase
  Ø  Real GDP
-          It is the value of output produced in constant or based year prices
-          Price x quantity
-          Can increase year to year only if output increase
-          The reason why Real GDP adjusted for
-          Current year x Base year

  Ø  Price index- By tracking changes in the price of in market basket of goods compared with the base year
-          Price of Market basket in current/ Price of market basket of goods in base year x 100
  Ø  GDP Deflator- is a price index used to adjust from nominal to real GDP
-          In the base year GDP deflator will = 100
-          Years after the base year GDP deflator > 100
-          Years before the GDP deflator < 100
-     Nominal GDP/ Real GDP x 100

February 2, 2015 

  Ø  Inflation- Rise of general level of prices, the standard is 2-3%
-          The inflation rate percentage increase in the price level overtime it is the key indicator of the economy’s health
  Ø  Deflation- Decline in the general price level (Item is $20 to $15)
  Ø  Disinflation- Is when the deflation declines itself
  Ø  CPI (Consumer Price Index)- Measures inflation by tracking the yearly price of a fixed basket of consumer goods and services
-          In addition CPI indicates changes cost of living and price level.
  Ø  Solving Inflation Problems
-          Inflation rate using market basket data
o   Current year market basket value – base year market basket value/ base year market basket value x 100
-          Inflation rate using price index
o   Current year price index- base year price index/ base year price index x 100
-          Estimating inflation using the rule of 70
o   The rule of 70 is used to calculate the number of years it will take the price level to double at any given rate of inflation.
o   Years needed to double inflation = 70/ annual inflation rate
-          Determining real wages (Unit 3 repeated again)
o   Real wages= Nominal price/ price level x 100
-          Find Real interest rate
o   Real interest= nominal rat e-inflation premium
o   Real interest rate- the cost borrowing or lending money adjusting to expected inflation, nominal rate is expressed as percentage.
o   Nominal Interest rate- unadjusted cost of borrowing or lending money.
  Ø  Causes of Inflation
-          Demand - pull Inflation- caused by an excess of demand over output that pulls prices upward.
-          Cost push Inflation- caused by a rise in per unit production cost due to increasing resource cost.
  Ø  Effects of Inflation
-          Anticipated- expecting it, cost of inflation adjusted, wages adjusted.
-          Unanticipated- (Had a day off but the boss said
      o   Hurt by Inflation
-          Fixed Income (Social Security etc.)
-          Savers
-          Lenders/Creditors
      o   Helped by Inflation
-          Borrowers (Debt would be repaid with cheaper dollars than those that is originally loaned out)
-          Fixed Contract


Wednesday, January 21, 2015

Unit 1

Unit 1
Introduction
*The Difference between Macroeconomics vs. Microeconomics
-          Macroeconomics is basically the entire economy while microeconomics is the study of parts of the economy.
*Both macroeconomics and microeconomics contains elements of positive economics and normative economics.
-          Positive – it claims that attempting to describe the world as is it is very descriptive. (Fact)
Ø  Positive eco. Concern what is.
-          Normative- claims that attempt to prescribe how the world should be. (Opinion)
Objective Thinking
-          Biases
Ø  People bring a bundle of biases and preconceptions to the field of economics.
Ø  The economic terminology used in newspapers and popular magazines is sometimes biased.
-          Fallacy of composition- the assumption that what is true for one individual or part of a whole is necessarily true for a group of individuals or the whole.
Chapter 2
*Needs vs. Wants
-          Needs are basic requirement for survival
-          Wants are desires of citizens much broader for your needs
Ø  Insatiable or unlimited, means that our desires for goods and services cannot be completely satisfied.
Ø  For a particular good or service can be satisfied; over a short period of time. General goods that is a list that would probably never end.

*Scarcity vs. Shortage
-          Scarcity- most fundamental economic problem that all society face.
-          Shortage- situation in which quantity demand is greater than quantity supply.
*Goods
-          Consumer good- is intended for final use
-          Capital good- is money (What bankers and normal people would think)
Ø  But really is items used in the creation of another good. (Example: Car is made with bolts, screws, steel, glass, etc.)
* 5 Factors of production (Everything is by Choice)
1.       Land- natural resources
2.       Labor- any work that is exerted
3.       Capital
-          Physical capital- human made to create other goods and services.
-          Human Capital- knowledge and skills gain through work and education
4.       Entrepreneurship- initiative, risk taker
Trade- offs- alternative that we give up whenever we choose a course action over another
Opportunity cost- the most desirable alternative given up by making a decision
‘Guns on butter’ – military and agriculture
*Production possibilities graph- this shows the alternative ways to use resources



Ø  Point ABC is on the curve, which means they are efficient and attainable.
Ø  Point D on the other hand is inside the curve
·         The Reason for it to be in the curve for example could be because of:
-          Recession
-          War or Famine
-          Underemployment/Unemployment
-          Population Loss
-          Resources are no available
Ø  Point E- Is unattainable and outside the curve
·         The Reason is:
-          Economic Growth
-          Technology
5 Key Assumptions on Production Possibilities Graph
1.       Two goods are produced
2.       Full employment
3.       Fixed resources (land, labor, capital, entrepreneur)
4.       Fived state of technology
5.       No international trade
*Price Elasticity of demand- tells how drastically buyers cut back or increase their demand for a good.
-          There are Three Types:
Ø  Elastic demand- when demand changes greatly due to a change in price (wants)
Ex. Cable TV or Regular TV, cable is pricier then having regular.
                E > 1
Ø  Inelastic demand- demand products will not change even if the price change, there are a few substitute (needs)
Ex. Everyday needs, eggs, tooth paste, milk, etc.
                E < 1  
Ø  Unit elastic (unitary elastic) –
E=1




Surplus                                                                                 Shortage
Quantity Supply > Quantity Demand       QD > QS
Ø  Correcting- is a point supply and demand at this point resources are used efficiently
Ø  Disequilibrium- not intersecting, something is happening  
Ø  Price ceiling (rent control) – below equilibrium, it is a government imposed price control on how high a price can be charged for product or service
Ø  Price floor- minimum wage, above the equilibrium it is a government imposed price control on how low someone can change for a product or service
                                       

 Marginal cost- cost of producing 1 more unit of output; equal to the change in total cost divided by the change in output