Topics 1-7

Macro Economics:  Possible Scope and Sequence

Semester Topics and Graphs: Guide to Basics

Topic 1:  Introductory Materials and Production Possibilities

·         For an economist, everything is scarce.

·         All decisions require an opportunity cost.

·         Most problems of predicting changes will require ceteris paribus assumptions.

·         The most common labels on the PPC are Y Axis = Capital Goods, X Axis = Consumer Goods

·         Students must know the significance of points inside the Frontier, on the Frontier, and outside the Frontier.  These are equal to:  inefficient, efficient, not available.

·         Students must understand that moving the Frontier requires more Factors of Production

·         Big Chart Graph:  Production Possibilities Curves/Frontiers (#1)

Topic 2:  Supply and Demand Basics and Currency Exchanges

·         When product prices are changed first, move points on the line.  This is known as a “Quantity” Change and this will create a surplus or a shortage.

·         When government steps in with artificial price floors and ceilings, they are trying to help suppliers with floors and consumers with ceilings. 

·         Artificial floors always create greater surpluses.

·         Artificial ceilings always create greater shortages.

·         When any other product factor changes first, move either the S or the D lines.  This is known as a “Supply or Demand” Change.

·         This will create a new EP and EQ for that market.

·         When the price of a good increases, a substitute’s demand will increase.

·         When the price of a good increases, a complement’s demand will decrease.

·         Perfectly inelastic supply lines are vertical

·         For the rest of a macro course, skip discussions or lessons on elasticity.

·         Currencies are supply and demand products.

·         Demand for currencies will flow to the “better” economy.

·         If D changes for one currency, S must change for the other currency.

·         The two currency graphs will move in the same direction.

·         One currency will always appreciate, the other will depreciate.

·         Appreciation of a currency hurts exports, depreciation helps make them cheaper.

·         Big Chart Graphs:  Dollar Graph, Other Currency Graph (#2, #3)

Topic 3: Goods and Government

·         Durable goods and non-durable goods are based on length of product life.

·         Transfer payments are from government to individuals.

·         Subsidies are payments from government to businesses.

Topic 4:  GDP Accounting

·         The expenditure approach of C + Ig + G + Xn must be memorized.

·         The expenditure approach is equal to AD.

·         The expenditure approach is also equal to GDP.

·         C is the most significant in the US, G has no savings leak, Ig is affected by interest rates (in an inverse way for the domestic market).

·         For GDP accounting, intermediate goods are not counted.

·         Unsold inventory is counted as Ig at year’s end.

·         Used goods do not count in the year the re-sell.

·         Goods and services are both counted as Consumption.

·         GDP to NDP accounts for Depreciation of Capital or Consumption of Fixed Capital (CFC).   This gives the real measure of growth.

·         Nominal minus Inflation = Real

Topic 5:  Business Cycles

·         The up-sloping Secular Trend is a Classical Theory of gradual improvement of lifestyles over time.  It can be connected to Say’s Law.

·         The minimum time span for a change in the cycle is 6 months (2 “quarters”).

·         The cycle is measured from trough to trough.

·         Peaks and troughs can only be recognized after they have occurred.

·         Expansions and Contractions/Recessions can be recognized as they occur.

·         The average cycle for the US has been about 6 years (200 years of data).

·         Recessions have historically lasted about 14 months (20 century and beyond).

·         It will be assumed that Recession will have excess unemployment.

·         It will be assumed that Expansions will have some excess inflation.

·         Big Chart Graph:  Business Cycles (#4)

Topic 6: Employment and Unemployment

·         Part time workers are counted as “employed”.

·         Discouraged workers are not counted as unemployed.

·         “Full Employment Unemployment” (FE) is the Natural Rate of Unemployment (NRU) for a country.

·         The differences between frictional and structural unemployment are important.

Topic 7:  CPI, GDP Deflators, Inflation

·         An Index Year is always made equal to 100.

·         Real change of values over time can always be calculated with the formula:  Later Year – Earlier Year/Earlier Year.  This = the Rate of Change.  The Rate x 100 = Inflation %. 

·         CPI measures monthly purchases by consumers, the GDP deflator looks at all the economy.

·         G spending changes are assumed to be more important that private C changes because C changes always have a savings leak.

·         Demand Pull inflation is caused by excessive consumption.  It can be manipulated by governmental policies.

·         Cost Push inflation is a loss of Supply and often can’t be corrected.

·         Stagflation is the presence of rising unemployment and rising inflation, and can be created by Supply Shocks.