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EC2013S11_L4

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

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

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