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In partial fulfillment for Economics 2A
BE 311/8:00-9:00AM/7172
Carmela Mae C. Duron
UM Vision, Mission
and Goals
Vision
A leading institution of higher learning
.44-60
MPC and MPS
Multiplier effect
.61-67
Aggregate Consumption .68
Expenditure
Aggregate Investment .69-76
Expenditure
Aggregate Government
Expenditure .77
Net Export .78-79
References .80-81
Introduction to
Macroecomonics
Macroeconomics
The study of the performance of national
economies, and of the policies that
governments use to try to improve that
performance.
Examples: Quantitative easing (QE), Euro Zone
Crisis, Abenomics, China Economy Soft Landing,
Real Wage of Taiwan
Cont.
Factor services
Goods
Household Firms (production)
Government
Financial markets
Other countries
Quality changes
While BEA includes impact of quality changes
for many goods and services (such as
automobiles and computers)
Does not have the resources to estimate
quality changes for millions of different
goods and services
By ignoring these quality improvements,
GDP probably understates true growth in
output from year to year
The Underground
Economy
Some production is hidden from
government authorities
Either because it is illegal or
Drugs, prostitution, most gambling
Because those engaged in it are avoiding
taxes
Production in these hidden markets cannot be
measured accurately
BEA must estimate it
Many economists believe that BEAs estimates are
too low
As a result, GDP may understate total output
Consumption
Spending
Consumption is the part of GDP
purchased by households as final
users
Almost everything households buy
during the year is included as part of
consumption spending when we
calculate GDP
Consumption Function
5,000
4,000 600
3,000 1,000
and the slope of the line
2,000 The vertical intercept ($2,000 (0.6) is the marginal
billion) is autonomous propensity to consume.
1,000 consumption spending . . .
Multiplier = Change in AD
Change in Spending
Multiplier = AD/ C, I, G, or X
The Spending
Multiplier Effect
Why does this happen?
Expenditures and income flow
continuously which sets off a
spending increase in the economy.
The Spending
Multiplier Effect
Ex. If the government
increases defense spending
by $1 Billion, then defense
contractors will hire and
pay more workers, which
will increase aggregate
spending by more than the
original $1 Billion.
The Multiplier
After an
increase in
planned
investment,
equilibrium
output is four
times the
amount of the
increase in
planned
investment.
Calculating the
Spending Multiplier
The Spending Multiplier can be
calculated from the MPC or the
MPS.
Multiplier = 1/1-MPC or 1
/MPS
http://www2.econ.iastate.edu/classes/ec
on102/bishnu/lectures.html
http://www.swlearning.com/economics/
mankiw/mankiw3e/powerpoint_macro.htm
l
www.sef.hku.hk/~kcfung/econ1001/
Lecture%20notes/Chapter1.ppt
faculty.riohondo.edu/.../Krugman
%20Pdf/ch2/Circular%20Flow.ppt
https://www.google.com.ph/?gfe_rd=c
r&ei=6d7vVufIN8ulmQW-i4EQ&gws_rd=ss
References (Websites)
www.nber.org/~rosenbla/econ302/lecture/lecture2.p
pt
https://www.google.com.ph/?
gfe_rd=cr&ei=6d7vVufIN8ulmQW-i4EQ&gws_rd=ssl#
www2.hawaii.edu/~huihe/TEACHING/UHECON300/pp
t02.ppt
https://www.csub.edu/~agrammy/Course
s/econ302/Chapt16.ppt
http://academic.udayton.edu/pmac/im/macro13.pdf
http://www.slideshare.net/chimku1/macroeconomics-sl
ide?from_action=save