Intermediate Macroeconomics (ECON 311)
1. In the calculation of US GDP, consumption expenditures account for more than two-thirds of
economic output. Explain why this result could be misleading if ones focus is on economic activity
Intermediate Macroeconomics (ECON 311)
1. Assume that the monetary base (B) is $100 billion, the reservedeposit ratio (rr) is 0.1, and the
currencydeposit ratio (cr) is 0.1.
a. What is the money supply?
b. If rr changes to 0.2, but cr is 0.1 a
Y2=c2, were neither lending nor borrowing.
Everything to the left, youre saving, and everything to the right youre bowing. See photo.
Theres the algebra.
-Theres also a time component, we can shift recources in time by saing or brrowing. My consum
Purchasing power of a dollar.
How much does it cost to make a dollar? The marginal cost of printing a dollar is 5cents, but it confers a
dollr of purchasing power. This difference belongs to whoever spends it first, that 95cents. Theyre
conferring the dif
Last time we were modeling Lucy and Ethels candy factory.
Production function, indicating diminishing marginal product.
We make a further assumption that P
is $2.00 (the price of our output is $2.00 per unit of output).
1. Does the fed have a credibility problem; yet, does not end up doing it
2. What does the current condition look like.
Janet Yellins answer. Nothing coherent. They are trying to forecast what effect their policy will be on
factors such as
Are we better or worse off in todays modern society?
How would an economist measure it? GDP?
The Real Median Household Income in the United States is also a good rate. It
fell off in the 99 Bush recession. If we go back straight away from 2016, the
Study of how people make choices about what and how much to do at various points in time.
How an induviduals current decisions affect what options become available in the future
Choices at one point in time influence possibi
Monetary base= amount of currency + bank reserves
1. What meets the reserve requirements? US is one of the formal legal countries that meet the
Resevers are Vault Cash (things that re not in the circulation, things that are waiting to be rese
Additions to the capital stock
Derivatives: financial instruments whose value derives from other
Derivatives do not count into a factor of GDP (stocks and bond trades arent counted either) it
just transfers, it w
1. Although economic activity causes economic output, GDP does not fully measure
economic activity. GDP is a measure for the final output or final values between stages of
production, but will not t
Babies rely on autonomous consumption: somebody does things for them: endowment, what can you
begin to gain with?
B is the slope: rise over run.
Marginal means change.
Propensity: what is your desire for change? Your willingness to consume. Your
Intermediate Macro: Notes to accompany Macroeconomics and the Financial
System by Mankiw and Ball.
Definition: Economics is the study of how society manages scarce resources. It is a
social science, hence we seek to make positive stat
Using the version of the Solow model which does not incorporate technological progress,
graphically depict what happens to an economys initial steady-state when the population
growth rate falls. Make sure you label all the axes an
Price level/ real variables
nominal interest rate
o without inflation adjusted
o return to savings/cost of borrowing
quantity theory of money and assumptions
o changes in Q$ change nominal expenditure
APC average propensity to consume
Synchronized periods of expansion and contraction
o Boom and bust
o moving away from the Macroeconomic Long-run
If prices dont adjust(stuck), markets wont clear
creates an inefficiency
Cycles emerge from circular(regula
o Occurs when people are without work and actively seeking work
o Measure of the prevalence of unemployment
o Calculated as a percentage
Dividing the number of unemployed indiv
If Y>C+I+G then NX>0 (+NX)
If Y<C+I+G then NX<0 (-NX)
NX=Flow International G and S
Business Cycle Theory notes
Business Cycle Theory
o Cause: AD Shock
o Cure: G-deficit(bust), G-surplus(boom)
Real Business Cycle
o Cause: AS Shock(i.e.,non-monetary) via innovation
o Cure: R&D stimulus, education
Aggregate Demand and Supply notes
Quantity Theory of Money and Aggregate Demand
Using Quantity Theory of Money to Derive AD curve
Let, k=1/V (velocitys inverse) rearranging, gives
real money balances(M/P) allocated between demand for
Store of Value
o Time aspect of trade
o Retain Purchasing Power
Unit of Account
o Divisible homogeneity
o Portable Expands Spatial Scale
Quantity Theory of Money
o MV=PT (Fisher)
o MV+PQ (Friedman)
o V= Velocity
o P=Price Value
Real Business Cycle Theory
Real business cycle theory is a
Class of theories explored first by John Muth (1961)
Associated most with Robert Lucas.
The idea is to study business cycles with the assumption that they were driven
entirely by technology sho
Econ 311, Spring 2015
In civilised society he stands at all times in need of the cooperation and assistance of great multitudes, while
his whole life is scarce sucient to gain the friendship of a few persons. - Adam Smith
What is the relationship between scarcity and tradeoffs?
Youre not at the doctor today. Instead, youre in class. Does this mean youre
trading off, in a probabilistic sense, a little bit of life for education? If your answer