Study Guides (258,860)
CA (125,024)
UTSG (8,541)
ECO (570)
ECO202Y1 (31)
N/ A (1)

Summary notes

30 Pages
443 Views

Department
Economics
Course Code
ECO202Y1
Professor
N/ A

This preview shows pages 1-3. Sign up to view the full 30 pages of the document.
ECO202Y1a.doc
Page 1 of 30
Introduction
HISTORY OF MACROECONOMICS
In 1930, there is no macroeconomics only classical economics (microeconomics).
When the great depression came, it was not expected nor could be explained started macroeconomics.
M. Keynes is the father of macroeconomics used mathematical models.
MACROECONOMIC VARIABLES
Output how to measure it?
Unemployment rate.
Inflation rate affects purchasing power.
OBJECTIVES OF MACROECONOMICS
Low unemployment.
Low inflation.
Stable but fast growing economy.
ANATOMY OF ECONOMIES
There are four major players: households, government, foreigners, firms.
They meet in three markets: factor, goods, financial.
OUTPUT
Have only one good that represents all goods GDP (gross domestic product).
Definition of GDP
trend (long run)
business cycles (short run)
recession
boom/expansion
year
output
www.notesolution.com
ECO202Y1a.doc
Page 2 of 30
Market value of all final goods and services produced within a country in a given period of time.
Market value: what the price should be.
of all: legal, commercially sold.
final: capital and consumption goods, but no intermediate goods.
Goods and services: both tangible and intangible products.
produced: reselling doesnt count.
within a country: geographical.
in a given period of time: time constraint (ex: quarterly, yearly).
Approaches
Output approach.
Final good approach:
=ii QPGDP.
Value added approach:
=i
VAGDP. The value added is the value of output minus the value of used
intermediate goods.
Demand approach.
GDP = Private Consumption (C) + Gross Investment (I) + Government Spending (G) + Net Export
(NX)
Private Consumption (60-70%): durable goods, nondurable goods, services.
Gross Investment (15-17%): fixed investment (machinery, building (residential, non-
residential)), inventories.
Government Spending (15-20%): federal, provincial, local.
Net Export NX = X Q (±5%): >0 (trade balance surplus), <0 (trade balance deficit), >0
(balanced trade).
Income approach.
Idea: When output is sold, somebody in the economic earns it.
GDP Labor Compensation + Capital Return + Rent
Doesnt quite add up to GDP because of indirect taxes and depreciation.
INFLATION AND PRICES
GDP
Nominal GDPt =
tt QP has both price and quantity in it.
Real GDPt =
tbQP based on a base year, and yields the change of aggregate quantity.
GDP deflator = 100
GDP real
GDP nomial×, or
Y
Y
P$
= so PYY =$. This is the price of the aggregate good.
From here, we can calculate the inflation of P GDP deflator inflation.
Chained Method
Real GDP Growth Ratet = 1001
111
1×
tttt
tttt
QPQP
QPQP
.
Cost of Living
Cost of Living =
btQP Qb (the bundle) is based in a base year.
www.notesolution.com
ECO202Y1a.doc
Page 3 of 30
Note: The bundle contains only household goods and is different from GDP.
Consumer Price Index: 100
Year Base
Living ofCost
CPI×= .
UNEMPLOYMENT RATE
Civilian Population = Labor Force + Not in Labor Force.
In symbols,
P
NL
P
L
NLLP+=+= 1.
P
L is the participation rate.
Labor Force = Employed + Unemployed.
In symbols,
L
U
L
E
UEL+=+= 1.
L
E is the unemployment rate.
Economies in the Short Run
Assumptions
The price level (P) is fixed.
Capital stock (K) and labor force (L) are fixed.
The output capacity
(
)
LKFY,= is fixed.
Y can go above or below output capacity
Y
by over-utilization or under-utilization of capital stock and labor
force.
GOODS MARKET
The demand for goods IGCZ
+
+
=
(we assume closed economy, so 0
=
NX).
Behavioral function for C is
(
)
dd YccYCC 10 +== . Since TYYd= ,
(
)
TYccC+= 10 .
c0: Autonomous consumption.
c1: Marginal propensity to consume (MPC).
We assume the tax function
T
T
=
is a lump sum tax.
Behavioral function for G is GG =, an exogenous variable.
Behavioral function for I is
I
I
=
, an exogenous variable.
So finally, IGTYccZ+++= )(
10 .
The supply equation is the sum of all value added Y.
So, by setting
Z
=
, we can solve for equilibrium GDP.
Stability
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
ECO202Y1a.doc Introduction H ISTORY OF M ACROECONOMICS In 1930, there is no macroeconomics only classical economics (microeconomics). When the great depression came, it was not expected nor could be explained started macroeconomics. M. Keynes is the father of macroeconomics used mathematical models. M ACROECONOMIC V ARIABLES Output how to measure it? Unemployment rate. Inflation rate affects purchasing power. O BJECTIVES OF M ACROECONOMICS Low unemployment. Low inflation. Stable but fast growing economy. boomexpansion output trend (long run) business cycles (short run) recession year A NATOMY OF ECONOMIES There are four major players: households, government, foreigners, firms. They meet in three markets: factor, goods, financial. O UTPUT Have only one good that represents all goods GDP (gross domestic product). Definition of GDP Page 1 of 30 www.notesolution.com ECO202Y1a.doc Market value of all final goods and services produced within a country in a given period of time. Market value: what the price should be. of all: legal, commercially sold. final: capital and consumption goods, but no intermediate goods. Goods and services: both tangible and intangible products. produced: reselling doesnt count. within a country: geographical. in a given period of time: time constraint (ex: quarterly, yearly). Approaches Output approach. Final good approach:GDP = P i i Value added approach: GDP = VAi. The value added is the value of output minus the value of used intermediate goods. Demand approach. GDP = Private Consumption (C) + Gross Investment (I) + Government Spending (G) + Net Export (NX) Private Consumption (60-70%): durable goods, nondurable goods, services. Gross Investment (15-17%): fixed investment (machinery, building (residential, non- residential)), inventories. Government Spending (15-20%): federal, provincial, local. Net Export NX = X Q (5%): >0 (trade balance surplus), <0 (trade balance deficit), >0 (balanced trade). Income approach. Idea: When output is sold, somebody in the economic earns it. GDP Labor Compensation + Capital Return + Rent Doesnt quite add up to GDP because of indirect taxes and depreciation. INFLATION AND P RICES GDP Nominal GDP =t PtQt has both price and quantity in it. Real GDP t PbQ t based on a base year, and yields the change of aggregate quantity. nomial GDP $Y GDP deflator = realGDP 100, or P = Y so $Y = PY . This is the price of the aggregate good. From here, we can calculate the inflation of P GDP deflator inflation. Chained Method Pt Pt1 t Real GDP Growth Rate t 1100 . Pt1 t1 PtQt1 Cost of Living Cost of Living = PQ Qb(the bundle) is based in a base year. t b Page 2 of 30 www.notesolution.com
More Less
Unlock Document


Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit