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Introduction to Macroeconomics:
A Mathematical Approach
Winter 2017
Professor: Iris Au
Class format:
Lecture:
There are 2 regular sections and 1 online section.
Lectures will be taped and will be available on WebOption.
Tutorials:
Weekly tutorials had been taped and will be available on WebOption.
Grading schemes:
Online assignments (best 5 out of 6) 15%
Midterm 35%
Final Exam 50%
For those who have attempted the midterm, improvement will be taken nto
consideration when assigning the overall grade. If you do better in the final
exam, your midterm marks will be replaced by your final exam marks (i.e.,
your final exam will count for 85%).
If anyone miss the midterm with legitimate reason, you must submit proper
documentation to the course coordinator within one week after the midterm
is written in order for us to transfer your midterm weight to the final exam.
If proper documentation is NOT being submitted in a timely manner, you
will receive a grade of ZERO in the midterm (i.e., your midterm weight will
not be transferred to the final exam and your final exam will count for 50%).
Outline
What is macroeconomics? (Chapter 6)
The national accounts. (Chapter 7)
What is Gross Domestic Product (GDP)?
3 approaches to measure GDP.
Nominal GDP vs. Real GDP
Price indexes. (Chapter 7)
Consumer price index (CPI) vs. GDP deflator.
Note:
Total spending on final goods and services = consumer spending +
investment spending + government purchases of goods and services +
exports imports
Total spending on final goods and services = Total value of all final goods
and services produced within a country (Gross domestic product)
GDP =
Example (continued):
Canadian Ore Canadian Steel Canadian Motors
(ore sold to (steel sold to (car sold to
CS) CM) consumers)
Sales $4200 $9000 $21500
Intermediate goods $0 $4200 $9000
Wages $2000 $3700 $10000
Interest payments $1000 $600 $1000
Rent $200 $300 $500
Profit $1000 $200 $1000
Example (continued):
Canadian Ore Canadian Steel Canadian Motors
(ore sold to (steel sold to (car sold to
CS) CM) consumers)
Sales $4200 $9000 $21500
Intermediate goods $0 $4200 $9000
Wages $2000 $3700 $10000
Interest payments $1000 $600 $1000
Rent $200 $300 $500
Profit $1000 $200 $1000
Using the income approach to find the GDP.
Wages =
Interest payments =
Rent =
Profit =
GDP =
Both expenditure approach and the income approach gave the same GDP.
Why?
Real GDP measures the total value of all final goods and services produce in
the economy during a given year, calculated using the prices of a selected
base year.
n
Real GDPt (RGDPt) = Pi, Base yearQi, t
i 1
Find the nominal GDP. (Use current year quantities & current year prices).
Compute the real GDP (Use current year quantities & base year prices).
2) GDP deflator
It is a current weighted price index, i.e., it uses the currently quantities of
all goods and services that enter into GDP as weights.
The GDP deflator for a year t is given as:
Nominal GDP in year t
GDP deflator in year t = 100
Real GDP in year t
COB1
CPI1 = 100
COBbase year
COB2
CPI2 = 100
COBbase year
Use the GDP Deflator to find the % in Prices from Year 1 to Year 2
Nominal GDP in year 2, NGDP2:
2) The GDP deflator uses the bundle that is currently produced and the CPI
uses a fixed bundle (the base-year bundle)