Macroeconomics

1/13/2011 9:01:00 AM

Principal Owners Agents Hired Geoffreys Shoe Store 50.00 cell its in geoffreys self interest to charge 300 dollars for this shoe Circular Flow Diagram There is a role or government for Adam Smith it is very limited though Role o Government in Economy Inclues all gov state local Negative Externality/Spillover Pollution Positive Externality Vaccines/ Spillover GDP: Gross Domestic Product measured in dollars Everything is combined into one The final good or service is counted Every country has a GDP that changes that changes from year to year Depends on where the product is made. Doesnt matter where its sold. At the bottom of this is jobs. If youre working in France whatever you do goes towards the French GDP. What doesnt count towards GDP o Selling a car doesnt matter its when the car is made that goes towards the GDP. o No market value- if mom doesnt work, doesnt count towards GDP o Environment- GDP doesnt care if you harm the environment o Social value- pyscological benefit is not counted in GDP o GDP is strictly numbers o Leisure

o Underground- illegal things arent counted, or barter system If no money changes hands then not counted towards GDP GDP= C + G + Ig + Xn Consumer, government, innovators, foreign

1. Const- build 2. Capital G 3. Inventory 4. Gross investment (everything) minus depreciation

Business Cycle

peak

Trough

Rule of 70 70/5% = # years to double Per Capita Nominal GDP/Population o Includes everyone, not just labor force Hyper-inflation When rate of inflation is higher than 100% annually Two types of inflation Anticipated o o o o o What people think is going to happen down the road Helps people who borrow money (Real means inflation has sucked out) Hurts bankers and people on fixed income Helps people who set their own rates

Philips Curve- Long Term Deflation is same as inflation but reverse UE goes up Rate of inflation goes down Supply side economics Government and discretionary policies hurt more than help Progressive tax system is a disincentive to produce more Provide incentives for people to produce more o Reduce progressive tax sustem o The more you make the less they take o Encourage saving by paying no tax

Laffer curve

Criticisms Tax cut & incentives are slow to catch on Some work more - but others earn more and increase leisure time Many economists dont know the whate the curve would actually look like Was tried by Reagan but quickly dumped when federal deficits increased

What will shift? Demand buy Resources whether increase or decrease, right/left; efficiency Economy of scale Capital o A. Privatestock- machines o B.

1/13/2011 9:01:00 AM

1/13/2011 9:01:00 AM