ECN 101 – Intermediate
Macroeconomic Theory
Tuesdays 6:10-7:00pm
Section A04
Wellman 229
ECN 101 – Intermediate
Macroeconomic Theory
Tuesdays 7:10-8:00pm
Section A03
Wellman 229
Some Info
• Office SSH 115
• Office Hours Wed & Fri 8:509:50am
• Midterm February 14th 35%
• Final 50% March 22nd 50% 3:30pm
• HW 15% 6 Problem Sets
HW Policy
• No late hw
• Hand in to your TA during class
• Or in the mailbox of your TA or
the Professor BEFORE it is due.
• On hw you must include:
• Your name, student id
• Your TA’s name
Tips for Success in Class and
School
• Attend Class
• Ask questions when you don’t understand
• Read the book
• Do the homework
• Talk to professor(s)!! Go to their
websites to see what research they
do!
• Grad school/job recommendation
letters!!
Macroeconomics
• Bigger Picture of Countries as a
whole
• Phillips curve infl and
unemployment
Gross Domestic Product GDP
• Market value of final goods and services
produced in an economy over a certain
period of time.
• Different approaches to calculating GDP
• Expenditure
• Production
• Income
– IN THEORY SHOULD BE EQUAL!
Expenditure Approach
• National Income Identity
Y = C + I + G + NX
C, consumption
I, investment
G, gov’t purchases
NX, net exports (trade balance)
Gov’t purchases rather than gov’t spending.
Sometimes when the gov’t spends, they aren’t
contributing to GDP.
Income Approach
• $ of product sold = $ income earned
– Employee compensation
– Indirect business taxes
– Net operating surplus of business
– Depreciation of fixed capital
Capital: think anything used in the production
of a good that is not labor – i.e. buildings,
machines, equipment
Some earned income is compensation for
depreciation of capital machinery
Production Approach
• Intermediate goods cannot be
counted twice
• Value added
=revenue – value of intermediate
inputs
Issues with GDP
• Many things not counted
– Home cooked meals
– Health of nation
– Environmental resources
Trying to measure economy of a country
to compare with others. Is GDP really so
good?
GDP measurements
• Nominal GDP = price level x real GDP
• % ∆ N GDP = %∆ price level + % ∆ R GDP
• Change in GDP between 2 years:
– Laspeyres index: use initial (base) year prices
– Paasche index: use final year prices
– Fisher index (chain weighting): take average
of Laspeyres and Paasche
An Example of calculating GDP
• In 2007 Davisland produced 50 road
bikes and 1000 thai dinners
• In 2007 a thai dinner costs $5 and a
road bike costs 200$
• Calculate the GDP of Davisland
• Now calculate the GDP in 2010
dollars, when prices in 2010 were 10$
and 300$ for a thai dinner and bike,
respectively
Comparing Across Countries
• 1. First convert to US dollars
using exchange rate – this gives
you nominal GDP of the foreign
country in U.S. dollars
• 2. Foreign R GDP
N GDP
Pus
= (Pus/Pforeign)x
Some Exercises
• India GDP 2007 = 47.2 trillion rupees
• US GDP 2007= 13.7 trillion dollars
• Exchange rate 2007 = 41.3
rupees/dollar
• Pindia/Pus=0.246
• What is real GDP in India in 2007
measured in US Dollars?
To Solve
• 1. Convert to Dollars
47.2 trillion rupees x (1/41.3) $/rupee= 1.14
trillion $
• 2. Convert to real GDP
• 1.14 trillion $ x (1/0.246) = 4.64 trillion
$
• 2007 Real GDP of India in $ = 4.64
trillion $
Growth Rates
• Growth rates are essentially percentage
changes
• Hidden within the “growth rate” is a unit
of time! How much did some variable
grow over a certain period?
• Generally g means growth rate per year
• Don’t forget to always know the unit of
time!
• Growth rate of y from year t to year t+1
g = (yt+1-yt)/yt
Calculating Tips
• See examples from class
• UNIT OF TIME IMPORTANT!
• Yearly rate, per year, per annum,
annual rate, over the year, for the
year, etc.
• 4 Variables: yt, y0, g, t. In any problem
you will be given 3 and told to find
the 4th. Just use the formula!
Examples
• You have $100 in your bank.
• At t= 0, 1, 2, 12, 24, 48, 60 (months)
Compute your balance if interest rate is 1%
Balance after t months = $100 x (1+r)t
t=1
t=2
t=24
$100x(1+0.01) = $101
$101x(1+0.01) = $100x(1+0.01)2 = $102.01
$100x(1+0.01)24=$126.97
Example
• In 2007 you have 1000$ in your
bank account
• In 1995 you had 1$
• Calculate the yearly growth rate,
assuming growth rate is constant
over this period!
Example
• Today Lake Tahoe has 1000
gallons of water.
• Over the past ten days, the rain
fall has been increasing the lake at
the rate of 5% per day.
• How many gallons were in Lake
Tahoe ten days ago?
Concave, Convex graphs and
Growth Rates
• Calculus: growth rate =
slope=derivative!