Macroeconomics+

ECON+321+

Economics+

•  10+Principles+of+Economics+

GDP:+Total+Produc?on+

GDP:+Final+Goods+

GDP:+And+Final+Services+

GDP:+In+a+Period+of+Time+

GDP:+Within+Borders+

REAL+VS+NOMINAL+

YEAR $&LALALOOPSY&DOLLS

#&LALALOOPSY&DOLLS

$&RED&RYDER&BB&GUNS

#&RED&RYDER&BB&GUNS NOMINAL&GDP REAL&GDP&2009

2009 $10+ 100 $20+ 50 $2,000+ $2,000+

2010 $15+ 200 $30+ 100 $6,000+ $4,000+

2011 $20+ 300 $40+ 150 $12,000+ $6,000+

PROBLEM+WITH+REAL+GDP+

YEAR $ XBOX # XBOX $ PS3 # PS3

LASPEYERS INDEX

(INITIAL AS BASE)

PAASCHE INDEX

(FINAL AS BASE)

2010 $200 50 $100 49 $14,900 $14,390

2011 $180 50 $110 63 $16,300 $15,930

GROWTH RATE: (Y'-Y)/Y 9.40% 10.70%

Soooo….Chain+Weight+gchain+weighted=(gLespeyers*gPaasche)^(1/2)+

YEAR $ XBOX # XBOX $ PS3 # PS3

LASPEYERS INDEX

(INITIAL AS BASE)

PAASCHE INDEX

(FINAL AS BASE)

2010 $200 50 $100 49 $14,900 $14,390

2011 $180 50 $110 63 $16,300 $15,930

GROWTH RATE:

(Y'-Y)/Y 9.40% 10.70%

Geometric Average 10.03%

REAL GDP 2010 $14,900

REAL GDP 2011 $16,394

INCOME]EXPENDITURE+IDENTITY+

Y=C+I+G+NX+

– Consump?on:+purchase+of+final+goods+and+services+by+households.+

–  Invest:+purchase+of+final+goods+and+services+by+firms…+"a"few"other"things"like"new"homes."

INCOME]EXPENDITURE+IDENTITY+

Y=C+I+G+NX+

– Government+Expenditure:+purchase+of+final+goods+and+services+by+Gov’t…Not"Transfers"like"Welfare,"Social"Security,"Medicaid"and"Medicare."

– Net+Exports:+Exports]Imports…imports"show"up"in"consump>on"but"must"be"subtracted"because"it"wasn’t"produced"within"the"borders.&

Math+Review+

•  First+Commandment+of+Economics:+MARGINAL(BENEFIT(=(MARGINAL(COST(

MaxQ+π+=+(10+]+Q)Q+–+2Q+

Price++=+10+–+Q+

Total+Cost+=+2Q++

Math+Review+

•  First+Commandment+of+Economics:+MARGINAL(BENEFIT(=(MARGINAL(COST(

dπ/dQ+=+10+–+2Q+–+2+=+0+

Marginal+Revenue++=+10+–+2Q+

Marginal+Cost+=+2+

Sooo……Q*+=+4+

Maximiza?on+

DERIVATIVES:+Know+How+to+Do+Them+

LOGS+and+Exponents:+Rules+

Exponen?al+and+Growth+

Natural+Log+and+Diminishing+Returns+

Also+Both+are+Convenient+

•  Exponen?al+

•  Log+

€

Y = ex

dYdX

= Slope of Y = ex

Example : Y = e2x+1; dYdX

= 2e2x+1

€

Y = ln( f (x))dYdx

= Slope of Y =1f (x)

( f '(x))

Example : Y = ln(4x + x 2); dYdx

=(4 + 2x)(4x + x 2)

Growth+

Growth+Example+

yt" +=+GDP+per+capita+

y0 +=+Ini?al+GDP+per+capita++++g+ +=+growth+rate+or+average+rate+per+period+

+++t+ +=+?me+

"" """

"" """

€

yt = y 0egt

€

dydt

= gy 0egt

ln(yt) = ln(y 0) + ln(egt ) = ln(y 0) + gtd ln(yt)dt

= g

Par?al+Deriva?ves+