Chapter 1 Outline
Goals of Part I
A) Introduce students to the main concepts in macroeconomics (Ch. 1)
B) Introduce national income accounting and major economic magnitudes (Ch. 2)
Goals of Chapter 1
A) Major macroeconomic issuesgrowth, b
Nominal versus Real GDP
Nominal GDP is the value of newly produced market goods and services measured at current
Consider an economy that produces only apples and oranges.
Nominal GDP is
(Current price of apples times quantity of apples) + (curren
Consumption is spending by domestic households (HH) on final goods and
Investment spending includes purchases on capital (business and residential)
plus changes inventory. This is not the purchas
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Effect of changes in current income
1. Increase in current income: both consumption and saving increase (vice
versa for decrease in current income)
2. Marginal propensity to consume, (MPC), fraction of additional current
income consumed in current period;
A Review of the Basics
SUPPLY & DEMAND
Law of supply
Law of demand
What is the difference between a change in demand and a
change in Qd?
What is the difference between a change in supply and a
change in Qs?
What causes chan
Due: Sept 13, 2016
1. A catering company has a contract to supply soda at LSU football games.
They suspect that the major factor influencing the quantity of soda consumed is the maximum temperature on the day of each The
What is the consumers budget constraint?
Solve for C2.
What are the properties of indifference curves?
A change in wealth causes a parallel shift of the budget
A change in the interest rate causes a rotation of the budget
constraint. Did the i
Consider the production function,
The MPN is given by (
) ( ) .
What happens to MPN as N changes?
What happens to MPN as K changes?
What happens to MPN as A changes?
Similarly, the MPK is given by
What happens to MPK as K changes?
Saving and Investment in the Open Economy
Goals of Chapter 5
A) Develop the idea that a countrys spending need not equal its production in every period, due to
B) The fundamental determinants of a countrys trade position are its sa
How Much Does the Economy Produce? The Production Function (Sec. 3.1)
A) Factors of production
1. Capital (K)
2. Labor (N)
3. Others (raw materials, land, energy)
4. Productivity of factors depends on technology and management
B) The producti
Consumption and Saving (Sec. 4.1)
A) The importance of consumption and saving
1. Desired consumption: consumption amount desired by households
2. Desired national saving: level of national saving when consumption is at its desired level
Diminishing marginal productivity: As more and more of a variable
input, N, is combined with a fixed input, K, eventually, the marginal
product of the variable input, MPN, will decline.
Is this a short-run or long-run concept?
National Income Accounting: The Measurement of Production, Income, and Expenditure
A) National income accounts: an accounting framework used in measuring current economic
B) Three alternative approaches give the