The model through Chapter 5
A: Total demand for goods,(Z):
Total demand is defined as,
Z C + I + G + X IM
To make things simpler we will ignore the foreign sector and focus on a closed economy,
We can break out the components of demand
developed Smiths ideas of the
coordinating role of decentralized
Key function of markets: to provide
Markets collect and distribute information at
relatively low costs.
In this way, markets operated like an
Math 128 Section 6.1 Average Value
Average Value of a Function:
Examples: Find the average value of the function over the given interval.
Ex 1: () = 1 + on = 0 to = 2.
Ex 2: () = 5 + 4 2 on [0,3].
Ex 3: The high temperature in New England in N
growth rates and inflation
GDP and welfare problems and debates
Alternatives: human development index
Whats missing from GDP?
Third party criterion
TODAY: finish up measurement
the total market (monetary) value of
final goods and services newly produced
within a countrys borders over a given time
Accounting for GDP
EXPENDITURES Y = C + I + G + (X-M)
INCOME National Income
Math 128 Section 7.3 Fundamental Theorem of Calculus
If () is a continuous function on .
() = () ()
Examples: Evaluate the integrals.
Ex 1: 0 6
Ex 2: 1
Ex 3: 0
Ex 4: 0
Ex 5: 5 2 3
Ex 6: 1
Math 128 Section 7.4 Integration by Parts
Integration by Parts
When integrating two functions multiplied together, when there is no relationship
between the two functions, we use the method of integration by parts.
Integration by Parts:
SPECIAL CODE: 111901
Academic Honesty Statement: By signing my name above, I acknowledge that I understand
each of the following behaviors:
using a calculator on a cell phone (or any other communication tec
Math 128 Section 7.1 Constructing Anti-Derivatives Analytically
An anti-derivative, or integral, is the opposite of the derivative.
Find [ 3 + 5] =
Then, 3 2 =
Examples: Evaluate the integrals.
Ex 1: (
Math 128 Section 6.2 Consumer and Producer Surplus
Equilibrium: ( , )
Consumer Surplus: measures the consumers gain from buying a product for less
than they were willing to pay.
Math 128 Section 6.3 Present and Future Values
Present Value = 0 ()
Future Value = Present Value*
() = rate at which payments are made ($/year)
= interest rate
= years into the future
Ex 1: a.) If you make a lump sum payment now, how much should you
Econ 204 10/4
The price index has a base of value of 100. You must divide index by 100 before doing calculations.
Classical = D=S
Keynesian = S>D, in this model, wages are sticky and do not fall so that supply = demand.
Unemployment is reduced by incre
Econ 204 9/27
a.) Fixed Price Level
Aggregate supply: The production side of the macro-economy
Imagine the price level was fixed at a particular level (P*) and couldnt change
As long as it was profitable to do so, firms would produce a
Econ 204 10/6
Hayek, Markets, and Information
Hayek developed Smiths ideas of the coordinating role of decentralized markets further.
Key function of markets: to provide information
market college and distribute information at relatively low costs.
real value of a variable is equal to the
nominal (current) value divided by the
REMEMBER: the price index has a base
value of 100. Therefore, YOU MUST DIVIDE
THE INDEX BY 100 BEFORE DOING YOUR
Example. Current GD
failure a situation in which free
markets fail to achieve an efficient
allocation of resources.
Example: prices fail to adjust so that demand =
Example: over-production of something harmful.
Example: a situation in which some pe
theory of aggregate demand
and the consumption function
Marginal propensity to consume and the
Extend the model: IS and LM curves
The IS curve all combinations of Y and r
in which Investment = Savings.
Money supply definitio
Policy: money creation and
high-powered money/monetary base
Open market operations
of monetary policy
Quantity theory of money
TODAY: Monetary policy, cont. and
household work and the depletion of
Y = C + I + G + (X-M)
Same as SAVINGS = INVESTMENT (Y C = I)
This may not hold EX ANTE, but the equality must hold EX
How to adjust to make sure savi
is money and the money supply?
Types of money
Definitions of M1, M2, and M3
supply and inflation
If the supply of output does not change, increases in
the money supply raise prices.
as financial intermediaries.