introduction to economics
Download
Skip this Video
Download Presentation
Introduction to Economics

Loading in 2 Seconds...

play fullscreen
1 / 62

Introduction to Economics - PowerPoint PPT Presentation


  • 433 Views
  • Uploaded on

Introduction to Economics. Macroeconomics The US Economy. Questions About Your Reading . What is an economy? Are there different types of economies? What is a market? What did Adam Smith mean by the invisible hand?. Markets and the Invisible Hand.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Introduction to Economics' - Angelica


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
introduction to economics

Introduction to Economics

Macroeconomics

The US Economy

questions about your reading
Questions About Your Reading
  • What is an economy?
  • Are there different types of economies?
  • What is a market?
  • What did Adam Smith mean by the invisible hand?
markets and the invisible hand
Markets and the Invisible Hand
  • A market is an arrangement that allows buyers and sellers to exchange things: A buyer exchanges money for a product; a seller exchanges a product for money.
  • Adam Smith used the metaphor of the invisible hand to explain how people acting in their own self-interest may actually promote the interest of society as a whole.

Chapter 1

question
Question
  • What is the principle of diminishing returns?
principle of diminishing returns
PRINCIPLE of Diminishing Returns

PRINCIPLEof Diminishing ReturnsSuppose output is produced with two or more inputs and we increase one input while holding the other input or inputs fixed. Beyond some point—called the point of diminishing returns—output will increase at a decreasing rate.

Can you think of an everyday example?

Chapter 2

question6
Question
  • What is macroeconomics?
macroeconomics
Macroeconomics

Macroeconomics is the study of the nation’s economy as a whole.

Macroeconomic analysis can be used to:

  • Understand how a national economy works.
  • Understand the grand debates over economic policy.
  • Make informed business decisions.

Chapter 1

outline lecture six 2002
Outline: Lecture Six, 2002
  • Vernon Smith wins Nobel
  • National Income Accounting
  • Great Depression of 1930’s
    • How bad can a downturn get?
    • Birth of macroeconomics
      • concepts
      • tools: national income accounting
  • Is it Happening Again?
news in 2002
News in 2002
  • Why did the Dow go down ?
  • Why is the Dow going up now?
  • Are we going to have a double dip recession coming?
    • How could you figure that out?
part ii macroeconomics us economy
Part II Macroeconomics & US Economy
  • Ch. 20 “Measuring a Nation’s Production and Income”
  • Ch. 21 “ Unemployment and Inflation
question11
Question
  • What do we mean by circular flow?
chapter twenty
: Chapter Twenty

Firms

Firms

  • Conceptual Framework: Circular Flow

Supply

Goods

Demand

Goods

Income

Labor

Households

Households

Income Perspective

Expenditure Perspective

slide13

Income Perspective: Individual’s Supply of Labor

Earnings

Lectures 2&3

low value

high

$480

Optimum

$180

for 9 hrs

of work

high value

Leisure

(learning)

$ 0

15 hours

of leisure

0 hours

24 hours

expenditure perspective
Expenditure Perspective

Firms

Supply

Goods

Demand

For Goods

Consumption

Households

Households: Consumption of Goods and Services

Firms: Investment in Plant and Equipment

expenditure perspective closed
Expenditure Perspective: Closed

Firms

Supply

Goods

Demand

Goods

Households

Government

Households: Consumption of Goods and Services

Firms: Investment in Plant and Equipment

Government: Expenditures on Goods and Services

expenditure perspective open
Expenditure Perspective: Open

Firms

Imports

(puchases)

Supply

Goods

Demand

Goods

Exports

(Sales)

Households

Government

Households: Consumption of Goods and Services

Firms: Investment in Plant and Equipment

Government: Purchase of Goods and Services

All Three: Exports - Imports = Net Exports

what has been happening to expenditure in the last year
What has been happening to expenditure in the last year?
  • Sources of information
    • US Department of Commerce: Survey of Current Business
    • The Conference Board: Business Cycle Indicators
what is counted in gdp national income
What is counted in GDP & National Income?
  • The easy answer: what is easy to count.
    • Strawberries, cars, steel etc
    • consumer and business income
  • What is left out? What is hard to measure.
    • Underground economy: barter
    • crime
    • household production: cleaning, child care etc. produced at home for no pay
lab three national income and product accounts nipa ch 20
Lab Three: National Income and Product Accounts (NIPA)-Ch. 20

Billions of Current $, Seasonally Adjusted at Annual Rates

GDP is Gross Domestic Product

slide20

Pie Chart of $ 10.2 Trillion of GDP by Component, 01 II

consumption

investment

government

net exports

Buy more foreign goods than we sell abroad

national income and product accounts nipa ch 20
National Income and Product Accounts (NIPA)-Ch. 20

Percent Change in Real (Constant $) GDP with Component

slide22

Percent Change in Real(Constant $) GDP

Source: http://www.yardeni.com

dr ed yardeni deutsch bank securities
Dr. Ed Yardeni, Deutsch Bank Securities

http://www.yardeni.com

September 24, 1998

how bad could it get
How Bad Could It Get?
  • Great Depression
the great depression
The Great Depression
  • Impact on the US Economy
  • Impact on Economic Thinking as a Consequence
  • What happens when the economy goes belly up?
  • Why does the economy go belly up?
why does consumption fall by 20 between 1929 and 1933
Why does consumption fall by 20% between 1929 and 1933?
  • income has fallen and a large fraction of people are unemployed
  • times are bad, sentiment and expectations are low, and people save for a rainy day if they can
  • wealth has decreased
    • for example, the stock market crash of 1929 decreased the wealth of investors in stocks, and decreased consumption out of wealth
why does investment fall from 92 4 b in 29 to 9 9 b in 32
Why does investment fall from $92.4 B in’29 to $9.9 B in ‘32?
  • Not only are many people idle, so is much of plant and equipment
    • with existing capital redundant, there is less urgency to invest in new equipment
  • times are bad, consumers are not buying, and businesses are failing, so business sentiment and expectations are low
  • if there is any cash flow, businesses may decide to keep it as cash reserve against the unexpected event rather than invest it
slide32

federal government was 1.6%, while

state & local government was 7.3%

impact of the great depression on economic thought
Impact of the Great Depression on Economic Thought
  • The conventional wisdom at that time was to wait, and the economy would recover
  • The Englishman John Maynard Keynes was not only a great economist but was aware of the political danger the depression posed to capitalism
    • he realized that it would be difficult to convince consumers and businesses to spend more in the depths of a recession
      • he emphasized the importance of uncertainty and expectations on behavior
    • he stressed an aggregate expenditures perspective and a role for government spending
a simple keynesian model
A Simple Keynesian model
  • The aggregate demand emphasis
    • for simplicity, ignore net exports and government expenditure, small in ‘29
  • Aggregate expenditures, GDP, equals consumption, C, plus investment, I
    • GDP = C + I
  • National Income, Y, equals consumption, C, plus savings, S
  • In Equilibrium, Aggregate Expenditures, GDP equals National Income, Y
    • GDP = Y
    • so C + I = C + S
    • and, in equilibrium, savings equals investment
chapter twenty37
: Chapter Twenty

Firms

Firms

  • Conceptual Framework: Circular Flow

Supply

Goods

Demand

Goods

Income

Labor

Households

Households

Income Perspective

Expenditure Perspective

slide38

The Consumption Function

consumption, C

C = C0 + mpc* Y

autonomous

consumption, C0

the slope of the consumption function,

the marginal compensity to consume,

mpc, is the increase in consumption

per $ increase in income

Income, Y

slide39

Autonomous Investment

Investment, I

I

Income, Y

slide40

Gross Domestic Product Equals Consumption Plus Investment

GDP = C + I

Consumption, C

Investment, I

GDP

C = C0 + mpc* Y

autonomous

consumption, C0

I

Income, Y

slide41

Squares with Equal Sides and 45 degree Lines

Y = Y

Income, Y

Y1

450

Y1

Income, Y

chapter twenty42
: Chapter Twenty

Firms

Firms

  • Conceptual Framework: Circular Flow

Supply

Goods

Demand

Goods

Income

Labor

Households

Households

Income Perspective

Expenditure Perspective

slide43

Equilibrium Level of Gross Domestic Product GDP=Y

GDP=Y

Consumption, C

Investment, I

GDP

autonomous

consumption, C0

450

Income

GDP=Y

slide44

Equilibrium Level of Gross Domestic Product GDP=Y

GDP=Y

Consumption, C

Investment, I

GDP

autonomous

consumption, C0

I

450

Income

slide45

Equilibrium Level of Gross Domestic Product GDP=Y

GDP=Y

Consumption, C

Investment, I

GDP

C = C0 + mpc* Y

autonomous

consumption, C0

I

450

Income

slide46

Equilibrium Level of Gross Domestic Product GDP=Y

GDP=Y

Consumption, C

Investment, I

GDP

GDP = C + I

C = C0 + mpc* Y

autonomous

consumption, C0

I

450

Income

GDP=Y

what happens if there is a shock using the model of the economy
What Happens if there is a Shock?Using the Model of the Economy
  • Stock market crash of 1929
  • or Attack on America, 9-11-2001?
    • if consumer confidence is shaken….
    • If business confidence is shaken ….
slide48

Equilibrium Level of Gross Domestic Product GDP=Y

GDP=Y

Consumption, C

Investment, I

GDP

GDP = C + I

C = C0 + mpc* Y

autonomous

consumption, C0

I

450

Income

GDP=Y

slide49

Equilibrium Level of Gross Domestic Product GDP=Y

GDP=Y

Consumption, C

Investment, I

GDP

GDP = C + I

C = C0 + mpc* Y

autonomous

consumption, C0

I

450

Income

GDP=Y

slide50

Equilibrium Level of Gross Domestic Product GDP=Y

GDP=Y

GDP = C + I

Consumption, C

Investment, I

GDP

C = C0 + mpc* Y

autonomous

consumption, C0

I

450

Income

GDP=Y

then and now 1930 2 vs 02
High Unemployment

Low consumption

Low Investment

Little Federal Spending

Low unemployment

High consumption

Low investment

Federal Spending

Then and Now: 1930’2 Vs. ‘02
current economic events
Current Economic Events

% of Civilian Labor Force That Is Unemployed

summary vocabulary concepts
national income

circular flow economy

gross domestic product

consumption

gross private domestic investment

government expenditures

net exports

nominal GDP

closed economy

John Maynard Keynes

aggregate expenditures

uncertainty

expectations

Summary-Vocabulary-Concepts
slide55

Summary of Personal Finance

Spend

Learn

Earn

Choice

?%

Save

Life Span

slide56

Choice: What to Build Equity In?

Housing

Save

Invest & Build Equity

Financial,

Including

cash reserve

slide57

Who Wants to be a Millionaire?

Stocks @ 11%

One Time

Investment

3 M Treasury Bills @ 2.22%

Mattress @ 0%

Stocks +  Savings : 17%

Save 6% of Wealth

Per Year & Invest

5 Y Treasury Bonds @ 3.83%

+  Savings: 9.8%

Mattress +  Savings: 6%

slide58

Your Stocks

Market

Indices

corporate earnings(profits)

Index of Leading Economic Indicators

Gross Domestic Product

Unemployment Rate

The Economy

slide59

Unemployment Rate

Source: http://www.yardeni.com

slide60

Index of Consumer Confidence

Source: http://www.yardeni.com

slide61

Index of Leading Economic Indicators

Source: http://www.yardeni.com

ad