2023/2/23
Introduction and Overview
Economics
February 22nd, 2023
Review of Last Semester
•
What is Economics?
KW: the social science that studies that production,
distribution, and consumption of goods and services.
Mankiw: is the study of how society manages its
scarce resources.
Wikipedia: is the social science that analyzes the
production, distribution, and consumption of goods
and services.
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2023/2/23
Review of Last Semester
•
Fundamental Principles
− Individual choice
− Interaction of individual choices
− Economy-wide interactions
(How the economy works as a whole)
Review of Last Semester
•
Fundamental Principles
Individual
choice
Microeconomics
Resource scarcity, therefore, tradeoffs.
Opportunity cost is the true cost.
“How much” decision made at the margin.
People respond to incentives.
Interaction of There are gains from trade.
individual
Markets usually lead to efficiency.
choices
Government can sometimes help.
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2023/2/23
Review of Last Semester
•
Fundamental Principles
Economywide
interactions;
How the
economy
works as a
whole
Macroeconomics
(KW starting from Ch 21)
One person’s spending is another’s income.
Standard of living depends on the economy’s
ability to produce goods and services.
Overall spending sometimes doesn’t match
what the economy is capable of producing.
Government policies can change spending.
Prices rise when printing too much money.
Society faces a short-run tradeoff between
inflation and unemployment.
Review of Last Semester
•
Microeconomics vs. Macroeconomics
Microeconomics studies how people make
decisions and how these decisions interact.
Macroeconomics studies the economy-wide ups and
downs, such as inflation, unemployment, and
economic growth.
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2023/2/23
Review of Last Semester
•
Micro or Macro?
−
−
−
−
−
How should I spend my red envelope money?
How much should Starbucks sell its latte for?
What’s the overall price level in Taiwan?
Should you get a job and quit school now?
How many people are unemployed in Taiwan last
month?
− Why is average income relatively higher in
Singapore than in Taiwan?
What Does Macroeconomics Study?
Recessions
[Def.] Periods of falling
real GDP.
[Def.] Periods of
economic downturn when
output and employment
are falling.
0
10000
20000
30000
40000
U . S . G D P p e r c a p ita i n m illio n s o f 2 00 5 d o lla rs
18 00
18 20
1 84 0
1 86 0
1 88 0
1 90 0
y e ar
1 92 0
1 94 0
19 60
19 80
20 00
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2023/2/23
What Does Macroeconomics Study?
self-regulating
Keynesian
monetary, fiscal policy
The Great
Recession
The Great
Depression
of the 1930s
What Does Macroeconomics Study?
•
Why we care? The pain of recession.
− Firms suffer losses
− Unemployment
− Reduced standard of living
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2023/2/23
What Does Macroeconomics Study?
LR growth
Keynesian
monetary, fiscal policyal
policy
Business
cycle
OUTLINE: (tentative)
Week (Date)
1 (Feb. 22nd)
2 (Mar. 1st)
3 (Mar. 8th)
4 (Mar. 15th)
5 (Mar. 22nd)
6 (Mar. 29th)
7 (Apr. 5th)
8 (Apr. 12th)
9 (Apr. 19th)
Topic
Introduction
GDP and CPI
Unemployment, Inflation
LR Economic Growth
Savings, Investment
Income, Expenditure
Holiday – No session
Midterm Exam
AD, AS
KW5
21
22
23
24
25
26
27
6
2023/2/23
OUTLINE: (tentative)
Week (Date)
1 (Feb. 22nd)
2 (Mar. 1st)
3 (Mar. 8th)
4 (Mar. 15th)
5 (Mar. 22nd)
6 (Mar. 29th)
7 (Apr. 5th)
8 (Apr. 12th)
9 (Apr. 19th)
Topic
Introduction
GDP and CPI
Unemployment, Inflation
LR Economic Growth
Savings, Investment
Income, Expenditure
Holiday – No session
Midterm Exam
AD, AS
KW5
21
22
23
24
25
26
27
OUTLINE: (tentative)
Week (Date)
1 (Feb. 22nd)
2 (Mar. 1st)
3 (Mar. 8th)
4 (Mar. 15th)
5 (Mar. 22nd)
6 (Mar. 29th)
7 (Apr. 5th)
8 (Apr. 12th)
9 (Apr. 19th)
Topic
Introduction
GDP and CPI
Unemployment, Inflation
LR Economic Growth
Savings, Investment
Income, Expenditure
Holiday – No session
Midterm Exam
AD, AS
KW5
21
22
23
24
25
26
27
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2023/2/23
OUTLINE: (tentative)
Week (Date)
10 (Apr. 26th)
11 (May 3rd)
12 (May 10th)
13 (May 17th)
14 (May 24th)
15 (Mar. 31st)
16 (June 7th)
17 (June 14th)
18 (June 21st)
Topic
Fiscal Policy
Money, Banking
Monetary Policy
Inflation, Deflation
KW5
28
29
30
31
Extended Topics
32, 33
Final Exam
TBA
TBA
POP QUIZ 1:
Which of the following is NOT a macroeconomic topic?
(A) Government’s role.
(B) Pricing strategies.
(C) Unemployment.
(D) Overall spending.
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2023/2/23
Macroeconomics and the Measures
Economics
February 22nd, 2023
Gross Domestic Product, GDP

[Def.] The market value of all final goods and
services produced in an economy during a given
period of time.
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2023/2/23
Gross Domestic Product, GDP

[Def.] The market value of all final goods and
services produced in an economy during a given
period of time.
− market value: use market prices to add up
different goods and services.
Gross Domestic Product, GDP

[Def.] The market value of all final goods and
services produced in an economy during a given
period of time.
− all that are sold legally in markets.
− exclude: home production, illegal transactions.
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2023/2/23
Gross Domestic Product, GDP

[Def.] The market value of all final goods and
services produced in an economy during a given
period of time.
− final goods and services: those sold to the
final/end users.
− intermediate goods and services: those will be
used as inputs for production of final goods and
services (not included to avoid double counting).
Gross Domestic Product, GDP

[Def.] The market value of all final goods and
services produced in an economy during a given
period of time.
− produced during the given period of time, not
transaction of items produced in the past.
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2023/2/23
Gross Domestic Product, GDP

[Def.] The market value of all final goods and
services produced in an economy during a given
period of time.
− geographically, regardless of the nationality of
the producer.
Gross Domestic Product, GDP

[Def.] The market value of all final goods and
services produced in an economy during a given
period of time.
− usually a year or a quarter (3 months).
− quarterly data are mostly seasonally adjusted.
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2023/2/23
Gross Domestic Product, GDP
•
The Components of GDP
−
−
−
−
Consumer spending or Consumption (C)
Investment spending or Investment (I)
Government purchases (G)
Net exports (NX or X − IM)
Gross Domestic Product, GDP
•
The Components of GDP
− Consumer spending or Consumption (C)
spending by households on goods and services,
except purchases of new housing.
− Investment spending or Investment (I)
− Government purchases (G)
− Net exports (NX or X − IM)
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2023/2/23
Gross Domestic Product, GDP
•
The Components of GDP
− Consumer spending or Consumption (C)
− Investment spending or Investment (I)
spending on productive physical capital
(including household purchases of new housing)
and changes to inventories.
− Government purchases (G)
− Net exports (NX or X − IM)
Gross Domestic Product, GDP
•
The Components of GDP
− Consumer spending or Consumption (C)
− Investment spending or Investment (I)
− Government purchases (G)
spending on goods and services by governments.
− Net exports (NX or X − IM)
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2023/2/23
Gross Domestic Product, GDP
•
The Components of GDP
−
−
−
−
Consumer spending or Consumption (C)
Investment spending or Investment (I)
Government purchases (G)
Net exports (NX or X − IM)
spending on domestically produced goods and
services by foreigners (exports, X) minus
spending on foreign goods and services by
domestic residents (imports, IM).
Gross Domestic Product, GDP
•
The Circular-Flow Diagram
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2023/2/23
Gross Domestic Product, GDP
•
The (Expanded) Circular-Flow Diagram
Gross Domestic Product, GDP
•
The (Expanded) Circular-Flow Diagram
− restricted to the flows of money (the implied
flows of goods, services, and factors of
production go the other way around).
− for any given box, the total flows of money out
of it is equal to the total flows of money into it.
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2023/2/23
Gross Domestic Product, GDP
•
Calculating GDP
1. Adding up total value of all final goods and
services produced (summing the value added
of each producer).
2. Adding up spending (C + I + G + NX) on all
domestically produced goods and services.
3. Adding up total factor income earned by
households from firms in the economy.
Gross Domestic Product, GDP
•
Calculating GDP -- A simple example
Suppose there is a 4-company small economy that
produces tomato, tomato sauce, pizza, and pasta,
where tomatoes are used to make tomato sauce and
tomato sauces are used to make pizza and pasta.
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2023/2/23
Gross Domestic Product, GDP
•
Calculating GDP -- A simple example
Tomato
Tomato Sauce
Pizza
Pasta
Mkt price
$5
$50
$600
$250
Quantity sold
500
100
10
12
$0
$2,500(tomato)
$2,500
$2,500
(Mkt) Value of sales
Intermediate goods
Wage, rent, and
profit
$3,200 $1,800
(sauce) (sauce)
$2,800
$1,200
Total Expenditure
Value added
Gross Domestic Product, GDP
•
Calculating GDP -- A simple example
Tomato
Tomato Sauce
Pizza
Pasta
Mkt price
$5
$50
$600
$250
Quantity sold
500
100
10
12
(Mkt) Value of sales
$2,500
$5,000
$6,000
$3,000
Intermediate goods
$0
$2,500(tomato)
$2,500
$2,500
Wage, rent, and
profit
$3,200 $1,800
(sauce) (sauce)
$2,800
$1,200
Total Expenditure
Value added
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2023/2/23
Gross Domestic Product, GDP
•
Calculating GDP -- A simple example
Tomato
Tomato Sauce
Pizza
Pasta
Mkt price
$5
$50
$600
$250
Quantity sold
500
100
10
12
(Mkt) Value of sales
$2,500
$5,000
$6,000
$3,000
Intermediate goods
$0
$2,500(tomato)
Wage, rent, and
profit
$2,500
$2,500
$2,800
$1,200
Total Expenditure
$2,500
$5,000
$6,000
$3,000
$3,200 $1,800
(sauce) (sauce)
Value added
Gross Domestic Product, GDP
•
Calculating GDP -- A simple example
Tomato
Tomato Sauce
Pizza
Pasta
Mkt price
$5
$50
$600
$250
Quantity sold
500
100
10
12
(Mkt) Value of sales
$2,500
$5,000
$6,000
$3,000
Intermediate goods
$0
$2,500(tomato)
Wage, rent, and
profit
$2,500
$2,500
$2,800
$1,200
Total Expenditure
$2,500
$5,000
$6,000
$3,000
Value added
$2,500
$2,500
$2,800
$1,200
$3,200 $1,800
(sauce) (sauce)
19
2023/2/23
Gross Domestic Product, GDP
•
Calculating GDP
1. Adding up total value of all final goods and
services produced (summing the value added
of each producer).
2. Adding up spending (C + I + G + NX) on all
domestically produced goods and services.
3. Adding up total factor income earned by
households from firms in the economy.
Gross Domestic Product, GDP
•
Calculating GDP -- A simple example
Tomato
Tomato Sauce
Pizza
Pasta
Mkt price
$5
$50
$600
$250
Quantity sold
500
100
10
12
(Mkt) Value of sales
$2,500
$5,000
$6,000
$3,000
Intermediate goods
$0
$2,500(tomato)
$2,500
$2,500
$2,800
$1,200
Total Expenditure 1. $2,500
$5,000
$6,000
$3,000
Value added
$2,500
$2,800
$1,200
Wage, rent, and
profit
$2,500
$3,200 $1,800
(sauce) (sauce)
20
2023/2/23
Gross Domestic Product, GDP
•
Calculating GDP
1. Adding up total value of all final goods and
services produced (summing the value added of
each producer).
2. Adding up spending (C + I + G + NX) on all
domestically produced goods and services.
3. Adding up total factor income earned by
households from firms in the economy.
Gross Domestic Product, GDP
•
Calculating GDP -- A simple example
Tomato
Tomato Sauce
Pizza
Pasta
Mkt price
$5
$50
$600
$250
Quantity sold
500
100
10
12
(Mkt) Value of sales
$2,500
$5,000
$6,000
$3,000
Intermediate goods
$0
$2,500(tomato)
Wage, rent, and
profit
$2,500
$2,500
$2,800
$1,200
Total Expenditure
$2,500
$5,000
$6,000
$3,000
Value added
$2,500
$2,500
$2,800
$1,200
2.
$3,200 $1,800
(sauce) (sauce)
21
2023/2/23
Gross Domestic Product, GDP
•
Calculating GDP
1. Adding up total value of all final goods and
services produced (summing the value added of
each producer).
2. Adding up spending (C + I + G + NX) on all
domestically produced goods and services.
3. Adding up total factor income earned by
households from firms in the economy.
Gross Domestic Product, GDP
•
Calculating GDP -- A simple example
Tomato
Tomato Sauce
Pizza
Pasta
Mkt price
$5
$50
$600
$250
Quantity sold
500
100
10
12
(Mkt) Value of sales
$2,500
$5,000
$6,000
$3,000
Intermediate goods
$0
$2,500(tomato)
Wage, rent, and
profit
$2,500
$2,500
$2,800
$1,200
Total Expenditure
$2,500
$5,000
$6,000
$3,000
Value added
$2,500
$2,500
$2,800
$1,200
3.
$3,200 $1,800
(sauce) (sauce)
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2023/2/23
EXERCISE 1: Trend of GDP per capita
0
10000
20000
30000
40000
U . S . G D P p e r c a p ita i n m illio n s o f 2 00 5 d o lla rs
18 00
18 20
1 84 0
1 86 0
1 88 0
1 90 0
y e ar
1 92 0
1 94 0
19 60
19 80
20 00
EXERCISE 1: Trend of GDP per capita
•
•
•
•
Replicate the previous trend with Taiwan (or any
country of your interest) GDP from the earliest year
available to 2021.
Indicate the recessions on your trend.
Submit via the course website before Feb. 28th 23:59
2 points maximum.
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