Economic Models Lecture 2 Dr. Jennifer P. Wissink ©2018 Jennifer P. Wissink, all rights reserved. January 29, 2018

Announcements-MACRO Spring 2018 Cornell has posted all final exam dates! See: https://registrar.cornell.edu/exams/spring-final-exam-schedule Econ 1120 Wissink’s is Monday May 14 at 2:00pm That’s the first day of finals! So it’s early! Be ready! See Blackboard for announcement. The first MEL Quiz towards your 600 magic number of MEL points has been assigned. Make a habit of checking the MEL site regularly for what’s been assigned and when a quiz is due. Make sure to see FAQs folder on Blackboard if you have MEL questions. Lots of answers there already. Also make sure to read the one announcement I have posted on the MEL site itself.

More Pearson/MEL Info If you are mail-ordering a book that will come with an MEL code, you can still go thru the MEL process of registering for our course. When you come to the payment screen look all around and somewhere on the screen you will find a button to check to have a 2 week trial. Apple Mac people, DON’T USE SAFARI!! Try Chrome or Mozilla Firefox. Make sure to clear memory cache so you are not loading a “dead” url page. When in doubt try to sign into our MEL course using a non-Apple machine, like a friend’s or a workstation at a lab. Everyone, make sure your browser is set up to accept 3rd party cookies. Make sure (after you have enrolled in our MEL course) that you Sign In to MEL using this link: https://portal.mypearson.com/login You are on the same “attempt’ of any given quiz UNTIL you hit Submit Quiz – ignore what you see on the MEL page suggesting otherwise. MEL constantly saves in the background, so you do not need to save your answers, they are already being saved.

i>clicker questions What part of Cornell? CAS ILR CHE CALS or Hotel Engineering or CAAP What part of US? Northeast Midwest West Coast The South Not from the US If not from the US, what part of the world? Canada Europe Asia & Down Under South&Central America Africa How much do you like using math outside of math classes? Love Hate Don’t love, Don’t hate Don’t know, we’ll see Have you already taken intro micro? Yup. Nope.

Econ 1120 Introductory Macroeconomics So what is this course about? (And what is it not about?) My working title: Introduction to Applied Macroeconomic Theory Theory: We will construct models. Look at the world, hypothesize a model, analyze the model, use the model to make predictions and then see if the model holds up under empirical scrutiny.

Applied Macroeconomic Theory Economics: The study of the allocation of scarce resources to produce commodities to satisfy infinite human wants. Classic definition. Economics is about constrained optimization. Choice under conditions of scarcity. Macro: The study of the determination of economic aggregates and how they relate to each other and how the government and the exogenous environment affects these aggregates. versus micro...

Macro v Micro in the News More Macro-ish: Data on Europe’s Economy, Job Numbers and Janet Yellen’s Goodbye https://www.nytimes.com/2018/01/28/business/europe-economy-jobs-yellen.html?rref=collection%2Fsectioncollection%2Fbusiness&action=click&contentCollection=business&region=rank&module=package&version=highlights&contentPlacement=7&pgtype=sectionfront More Micro-ish: The Subway Is Next Door. Should New Yorkers Pay Extra for That? https://www.nytimes.com/2018/01/29/nyregion/subway-real-estate-nyc.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=second-column-region&region=top-news&WT.nav=top-news

Examples of Microeconomic and Macroeconomic Concerns BRANCH OF ECONOMICS PRODUCTION PRICES INCOME EMPLOYMENT Micro Output in individual industries How much steel? How much office space? How many cars – big or small, how fuel efficient? Price of individual goods and services Price of medical care. Price of gasoline. Food prices. Apartment rents. Distribution of income and wealth Wages in the auto industry. Minimum wage. Executive Salaries. Poverty. Wage differentials. Employment by individual businesses and industries Steel industry jobs. Number of employees in a firm. Number of accountants. Macro National production/output Total output: GDP Output by sectors. Investment. Growth of output. Aggregate price level Consumer prices. Producer prices. Rate of inflation. Interest Rates. National income Total wages and salaries. Total corporate profits. National savings. Employment and unemployment in the economy Total # of jobs. Unemployment rate Productivity growth

Applied Macroeconomic Theory Applied: We will apply what we learn to real world situations.

Why Study Economics? It’s everywhere. It’s unavoidable. To understand how markets work. It’s a requirement and a prerequisite for understanding lots of other material. To help you understand how economists think and construct arguments. To help you differentiate good from bad analysis.

On Modeling & Constructing Theories Simplistic Model Construction Ockham’s Razor Evaluation of Models economics is a social science Two pitfalls to avoid not recognizing the “fallacy of composition” using “post hoc ergo propter hoc” logic Positive vs. Normative analysis What is versus What ought to be William of Ockham 14th century philosopher

A Road Map Suppose I want to get you from here to Cortland. How about we draw a map.