Economics 1B Lecture 7 S2011

Economics 1B Lecture 7 S2011 - 4/22/2011 Economics 1B UC...

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4/22/2011 1 Economics 1B UC Davis Professor Siegler Spring 2011 The Student Disability Center asks that students interested in serving as paid note takers for this course please contact Russ Zochowski at rjzochowski@ucdavis.edu .No t e takers are paid a stipend of $25 per unit ($100), and $25 per additional student. Students are asked to put note taker, the course title and number, and instructor’s name in the subject lines of their emails. 2
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4/22/2011 2 I. Introductory Comments y Macroeconomics is the branch of economics that studies economy wide phenomena, including economic growth, inflation, and unemployment. y Measuring Macroeconomic Performance y Theories of Economic Growth (Long Run) y Theories of Economic Fluctuations or Business Cycles (Short Run) y Everything I’m going to discuss today will be covered in far greater detail in the coming weeks. y Bring a calculator with an exponent key from now on. 3 I. Introductory Comments y Nominal vs. Real Variables y When a variable is measured in dollars or percentages, with no adjustment for the dollar’s changing value due to changes in prices, it is called a nominal variable . y When a variable takes into account the impact of changes in prices over time it is called a real variable changes in prices over time, it is called a . y Real variables, and not nominal variables, influence the decisions of rational economic actors. 4
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4/22/2011 3 II. Measuring Macroeconomic Performance y Measuring Production y Nominal Gross Domestic Product (GDP) is the total value of all final goods and services newly produced in an economy during a given period of time. Nominal GDP can increase because we are producing more goods and services and/or because the prices of those goods and services have increased. y Real GDP is adjusted for changes in prices over time (inflation), and it reflects the “real” production of goods and services. We will denote real GDP by Y . 5 II. Measuring Macroeconomic Performance y Measuring Production y Real GDP per capita is the most commonly used measure of the standard of living. It is real GDP divided by the population, and it measures the average production of goods and services per person. y Labor Productivity is real GDP per hour of work. It measures the quantity of goods and services the average worker can produce in one hour of work. The growth of labor productivity determines the growth of real GDP per capita in the long run . 6
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4/22/2011 4 II. Measuring Macroeconomic Performance y Measuring Prices y Inflation is an overall rise in the prices of goods and services over a period of time. When inflation is present, the purchasing power of a given unit of money buys fewer goods and services; that is, the “real” value of money is less. The inflation rate is denoted by π.
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Economics 1B Lecture 7 S2011 - 4/22/2011 Economics 1B UC...

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