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ECN 101 – Intermediate Macroeconomic Theory

ECN 101 – Intermediate Macroeconomic Theory. Tuesdays 6:10-7:00pm Section A04 Wellman 229. ECN 101 – Intermediate Macroeconomic Theory. Tuesdays 7:10-8:00pm Section A03 Wellman 229. Some Info. Office SSH 115 Office Hours Wed & Fri 8:50-9:50am Midterm February 14 th 35%

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ECN 101 – Intermediate Macroeconomic Theory

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  1. ECN 101 – Intermediate Macroeconomic Theory Tuesdays 6:10-7:00pm Section A04 Wellman 229

  2. ECN 101 – Intermediate Macroeconomic Theory Tuesdays 7:10-8:00pm Section A03 Wellman 229

  3. Some Info • Office SSH 115 • Office Hours Wed & Fri 8:50-9:50am • Midterm February 14th 35% • Final 50% March 22nd 50% 3:30pm • HW 15% 6 Problem Sets

  4. HW Policy • No late hw • Hand in to your TA during class • Or in the mailbox of your TA or the Professor BEFORE it is due. • On hw you must include: • Your name, student id • Your TA’s name

  5. Tips for Success in Class and School • Attend Class • Ask questions when you don’t understand • Read the book • Do the homework • Talk to professor(s)!! Go to their websites to see what research they do! • Grad school/job recommendation letters!!

  6. Macroeconomics • Bigger Picture of Countries as a whole • Phillips curve infl and unemployment

  7. Gross Domestic Product GDP • Market value of final goods and services produced in an economy over a certain period of time. • Different approaches to calculating GDP • Expenditure • Production • Income • IN THEORY SHOULD BE EQUAL!

  8. Expenditure Approach • National Income Identity Y = C + I + G + NX C, consumption I, investment G, gov’t purchases NX, net exports (trade balance) Gov’t purchases rather than gov’t spending. Sometimes when the gov’t spends, they aren’t contributing to GDP.

  9. Income Approach • $ of product sold = $ income earned • Employee compensation • Indirect business taxes • Net operating surplus of business • Depreciation of fixed capital Capital: think anything used in the production of a good that is not labor – i.e. buildings, machines, equipment Some earned income is compensation for depreciation of capital machinery

  10. Production Approach • Intermediate goods cannot be counted twice • Value added =revenue – value of intermediate inputs

  11. Issues with GDP • Many things not counted • Home cooked meals • Health of nation • Environmental resources Trying to measure economy of a country to compare with others. Is GDP really so good?

  12. GDP measurements • Nominal GDP = price level x real GDP • % ∆ N GDP = %∆ price level + % ∆ R GDP • Change in GDP between 2 years: • Laspeyres index: use initial (base) year prices • Paasche index: use final year prices • Fisher index (chain weighting): take average of Laspeyres and Paasche

  13. An Example of calculating GDP • In 2007 Davisland produced 50 road bikes and 1000 thai dinners • In 2007 a thai dinner costs $5 and a road bike costs 200$ • Calculate the GDP of Davisland • Now calculate the GDP in 2010 dollars, when prices in 2010 were 10$ and 300$ for a thai dinner and bike, respectively

  14. Comparing Across Countries • 1. First convert to US dollars using exchange rate – this gives you nominal GDP of the foreign country in U.S. dollars • 2. Foreign R GDPPus = (Pus/Pforeign)x N GDP

  15. Some Exercises • India GDP 2007 = 47.2 trillion rupees • US GDP 2007= 13.7 trillion dollars • Exchange rate 2007 = 41.3 rupees/dollar • Pindia/Pus=0.246 • What is real GDP in India in 2007 measured in US Dollars?

  16. To Solve • 1. Convert to Dollars 47.2 trillion rupees x (1/41.3) $/rupee= 1.14 trillion $ • 2. Convert to real GDP • 1.14 trillion $ x (1/0.246) = 4.64 trillion $ • 2007 Real GDP of India in $ = 4.64 trillion $

  17. Growth Rates • Growth rates are essentially percentage changes • Hidden within the “growth rate” is a unit of time! How much did some variable grow over a certain period? • Generally g means growth rate per year • Don’t forget to always know the unit of time! • Growth rate of y from year t to year t+1 g = (yt+1-yt)/yt

  18. Calculating Tips • See examples from class • UNIT OF TIME IMPORTANT! • Yearly rate, per year, per annum, annual rate, over the year, for the year, etc. • 4 Variables: yt, y0, g, t. In any problem you will be given 3 and told to find the 4th. Just use the formula!

  19. Examples • You have $100 in your bank. • At t= 0, 1, 2, 12, 24, 48, 60 (months) Compute your balance if interest rate is 1% Balance after t months = $100 x (1+r)t t=1 $100x(1+0.01) = $101 t=2 $101x(1+0.01) = $100x(1+0.01)2 = $102.01 t=24 $100x(1+0.01)24=$126.97

  20. Example • In 2007 you have 1000$ in your bank account • In 1995 you had 1$ • Calculate the yearly growth rate, assuming growth rate is constant over this period!

  21. Example • Today Lake Tahoe has 1000 gallons of water. • Over the past ten days, the rain fall has been increasing the lake at the rate of 5% per day. • How many gallons were in Lake Tahoe ten days ago?

  22. Concave, Convex graphs and Growth Rates • Calculus: growth rate = slope=derivative!

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