EC2013S11_L4

EC2013S11_L4 - ECON2013 Principles of Macro Lecture 4 What...

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Unformatted text preview: ECON2013 Principles of Macro Lecture 4 What do we care about? Today we talk about 1. GDP 2. Inflation 3. Unemployment GDP Aggregate Economy Use Demand and Supply to study GDP and the Price Level (and also Unemployment) But what are the GDP and the Price Level? And why should we care about them? Macroeconomics Aggregation : Combine many individual markets into one overall market Abstraction : Bundle different goods and services in only one big good that represents the entire economy Name: We name this good the Domestic Product (GDP) One Economy = One Good Price: We can give a price to this new good During economic fluctuations Markets move up or down together This can be a good approximation! Cost of Living The easiest way to think about this is to look at cost of living. We can compare cities and countries http://www.guardian.co.uk/news/datablog/2010/jun/30/city-costs-living http://www.mercer.com/costoflivingservices http://www.kiplinger.com/tools/bestcities_sort/ http://www.finfacts.ie/costofliving.htm (video) GDP and Price In the News http://economix.blogs.nytimes.com/2009/03/04/what-does-62-percent- mean/?scp=10&sq=record%20drop%20%20gdp&st=Search (indic.) http://www.nytimes.com/2009/03/06/business/worldbusiness/06iht- jobs.4.20659812.html?scp=12&sq=record%20high%20unemployment&st =Search http://www.nytimes.com/2010/08/06/business/economy/06deflation.html?s cp=7&sq=risk%20deflation&st=Search GDP, Growth and Inflation Inflation Sustained increase in price level Outward shift of aggregate demand curve Growth Total output increases Outward shift of A.D. Recession Total output declines Leftward shift of aggregate demand curve GDP and Price Shift in the demand curve Figure 1 0 Quantity Price (a) D D 0 Quantity Price (b) Q 0 S S P 0 E D 0 D 0 S S P 0 D 1 D 1 P 1 E A GDP and Unemployment Relation Higher GDP means Higher Employment If you produce more you need to employ more workers Sustained Growth : Less Unemployment Recession: More Unemployment GDP, Input and Output GDP is a measure of the amount of output that our economy produces Like a very large factory, our economy takes...
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This note was uploaded on 04/08/2011 for the course ECON 2003 taught by Professor Staff during the Spring '11 term at Arkansas.

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EC2013S11_L4 - ECON2013 Principles of Macro Lecture 4 What...

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