Econ Activity 1

Watch:

Questions

1. What are the key macroeconomic concepts mentioned in the videos?

2. How do these concepts highlight the importance of studying
macroeconomics?
3. What are two central themes in the study of macroeconomics?
4. Briefly discuss the concept of GDP.

1st Video: https://www.facebook.com/watch/?

v=623881874927523&extid=sZ2mTPSCT9ktEZpv

Economics- not a study of wealth

- Forbes: allocate of scarce resources

- Scarce Resources: limited things (oceans, time, sea etc.)
- Opportunity Cost: what you give up in exchange of something that is an asset
(own definition)
- Economics is the art of making sound choices

2nd Video: https://www.youtube.com/watch?v=MKO1icFVtDc

Unit 1: Basic Economic Concepts

What is Economics

- Economics: efficient way to use our scarce resources

- Scarcityz: unlimited wants but limited resources
- Opportunity cost: most desirable alternative given up when you make a
choice.
- Factors of production: land, labor, capital

The Production Possibility Curve:

- a different combination of producing two different goods using all your

resources.
- When point is on the curve, It is efficient (using resources to the fullest).
- When point inside the curve, it’s inefficient
- When point outside the curve, it’s impossible/ unattainable
- Constant Opportunity Cost when straight line meaning the resources
produced are similar resources
- Increasing Opportunity Cost when it is concave to the origin, meaning
resources are not similar
 - Law of increasing Opportunity Cost: produced more of one, you need to get
more and more of the other one.
- Shifting the PPC: can shift if more or less resources
o Factors: more/less resources, trade (shows how much they could
consume)

Absolute and Comparative Advantage

- Absolute Advantage: figure out who produces more

o Producer that can produced the most output OR requires the least
amount of inputs (resources)
- Comparative Advantage: countries that are specialized should trade if they
have a relatively lower opportunity cost (specialize in the good that is cheaper
for them to produce)
o  Requires calculation
- Terms of Trade: how many units of one product should they trade for the
other product
o Agreed conditions that would benefit both countries

Economic Systems

Capitalism

Circular Flow Model Supply Income $$

Demand Costs $$ (Factor payment)

resources Resources (factors of production)

RESOURCE
MARKET

taxes taxes

subsidie Transfer
BUSINESS GOVERNMENT payment INDIVIDUAL
Good andPublic goods
services
Public goods
Good and services

Revenue Supply $$ PRODUCT

Revenue Demand $$
MARKET

Shows that theres business, government, and individual and how they interact with each
other.

Business: won’t sell and buy two different things, they sell products and they buy resources

Individual: buy products and sell resources

Circular Flow Model Vocab

Private Sector: part of economy run by individual and businesses

Public Sector: part of the economy that is controlled by the government

Factor Payment: individual sells resources and businesses pay the factor payment to those
individuals

Transfer Payment: the government pays individuals like welfare to provide public services

Subsidies: government provides businesses money to build or produce more

DEMAND AND SUPPLY

- Demand: downward sloping curve shows the Law of Demand (Inverse relationship between
price and quantity demanded)
o When price goes up you will buy less. Price goes down you will buy more
o Price and Quantity demanded
- Supply
o Law of Supply: Price goes up, produce more, Price goes down produce less
o Direct relationship between price and quantity supply
- Equilibrium
o Price goes up, there is no shift
o Price doesn’t shift the curve
o It moves along the curve
o Shortage (Price Low) (Qd > Qs) or Surplus (Price High) (Qd < Qs)
- Single Shifts
o Demand Increase or Decrease
o Supply Increase or Decrease

o
 UNIT 2: Macro Measures
For all countries there are three major economic goals:
1. Promote Economic Growth: produce more stuff
2. Limit Unemployment: keep employment up
3. Keep Prices Stable

Goal #1: Economic Growth

- Gross Domestic Product (GDP)

o Dollar value of all final goods and services produced in a year within a country’s
borders/ anything you produced in your own country.
o NOT INCLUDED:
 Intermediate Goods
 Goods inside the final goods don’t count (ex. Price of finished car,
not the stock radio of tires)
 Go into production of the final good
 Only count final good
 Nonproduction Transactions (nothing produced)
 Financial Transactions: stocks, bonds, real estate
 Used Good: old cars
 Non-market and Illegal Activities
 Things made at home: household products (unpaid work, black
market, drugs)
o 2 ways of calculating GDP
 Expenditure Approach: Add up all the spending on final goods and services
produced in a given year
 GDP= C + I + G (X - M)
 Business spending is investment not stock and bonds
 Government spending
 Exports - Imports
 Income Approach: Add up all the income earned that resulted selling all final
goods and services produced in a given year
 Add up all income earned from producing from producing final
goods
 Factor Payment
 GDP = Rent + Wages + Interest + Profit
- GDP Per Capita (per person)
o GDP divided by the population
o Identifies how many products each person makes.
Year 2−Year 1
o % Change in GDP-= ∗100
Year 1
Nominal GDP vs Real GDP

- Nominal GDP: measured in current prices. Doesn’t account for inflation from year to year.
o Doesn’t adjust for inflation
- Real GDP: expressed in constant, or unchaning dollars, Real GDP adjust for inflation
o Best Measure of Economic Growth

The Business Cycle

Economy goes up and down over time. Only 3 places the economy can be at any given period of
time:

- Full Employment: The economy is great, GDP is up, Real GDP is moving nice and steady
- Recession/ recessionary gap: Not doing well, high employment
o 6 month of decline in Real GDP
- Inflationary Gap: economy is heating and more inflation

Goal # 2: Limit Unemployment

- Unemployment: Workers that are actively looking for a job but aren’t working
- The Unemployment Rate- Percent of people in the labor force who want a job but are not
working
o Unemployment Rate = # unemployed / # labor force * 100
- Labor Force: group of people who can able and are willing to work above 16 (no
institutionalized not in jail)
- Labor Force Participation rate: Percent of population in the labor force

The 3 types of employment

 2 types of unemployment: the goal is to only have frictional and structural
unemployment

- Frictional Unemployment: temporary unemployment or being in between jobs

o Individuals are qualifies with transferable skills
o Seasonal Unemployment: under frictional which is due to time of year and nature of
the job
- Structural Unemployment: changes in the labor force make some skills obsolete
o Replaced by robots
o Workers don’t have transferable skills and these jobs will never come back
o Workers must learn new skills to get a job
o Technological Unemployment: under structural where automation and machinery
replace workers
- Cyclical Unemployment: caused by the recession
o Demands for goods and services falls, demand for labor falls and workers are fired
o Economy is down because not buying products

Natural Rate of Unemployment (NRU)

- Frictional and structural unemployment are present at all times because people will always
be between jobs or replaced by technology
- Natural Rate of Unemployment (NRU): Frictional + Structural Unemployment.
o The amount of unemployment that exists when the economy is healthy and growing
- Full Employment Output (Y): The Real GDP created when there is no cyclical unemployment.

Criticisms of the Unemployment Rate: unemployment rate can misdiagnose the actual
unemployment rate because of:

- Discouraged Workers: some people no longer looking for a job because they have given up.
- Underemployed Workers: part-time workers or someone who wants more hours but can’t
get them is still considered employed

Goal # 3: Limit Inflation

- Inflation: rising general level of prices and it reduces the “purchasing power” of money
o Each dollar of income will buy fewer goods than before
o Deflation: when prices are falling
o Disinflation: Inflation rate going up in a long time then going down less and less
o Unexpected inflation helps borrowers, but hurts lenders and people on fixed income
- Nominal Wage: Wage measured by dollars rather than purchasing power
o Looking at regular numbers
- Real Wage: Wage adjusted for inflation
- Real Interest Rates
Synchronous Class (Sept 12, 2022)