1. Where You Are! Economics 201 – Principles of Macroeconomics
Monday and Wednesday from 2:00 to 3:15pm
Principles of Macroeconomics by Parkin, 13th edition, Pearson.
MyEconLab for Parkin for graded homework assignments and practice.
Course website:

2. Who Am I Dr. John Neri Office Location: 1106D Morrill Hall
Office Hours: M and W 10:30am – 11:30am

3. Advice!!! Course is cumulative.
Important to keep up with the lectures, homework and readings each week.

4. Illness or Family Emergency and Exams
Steps you MUST follow:
• Pre-Notification: If you are sick or have a family emergency and cannot take an exam, you must contact Professor Neri before the exam. You must fill out the Request for Excuse form found on the course web page.
• Written Verification: Illness or family emergency must be subsequently verified in writing by a physician. If you go to the health center and a doctor will not write you a note, that means they consider you well enough to continue with academic activities.
If both steps are not followed, you will not be excused from the exam

5. Students using the ADS facility must meet with me within the first 2 weeks of classes.

6. Federal Government Tax Rebates: May - July 2008

7. The short-term Treasury bill rate The long-term bond rate
Interest Rates
Interest Rate Changes
The federal funds rate
The short-term Treasury bill rate
The long-term bond rate

8. Macroeconomics vs Microeconomics
Macroeconomics Deals with the economy as a whole.
Focuses on determinants of total national income, deals with aggregates such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices.
Microeconomics Examines the functioning of individual industries and the behavior of individual decision-making units - firms and households.
aggregate behavior The behavior of all households and firms together.
sticky prices Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded.

9. Three Major Macroeconomic Concerns
Growth in production
how much we produce and can we keep it growing
Unemployment
High employment - Low unemployment
Inflation and deflation
Low stable inflation

10. Examples of Macroeconomic Questions
What causes inflation?
Why is the unemployment rate sometimes high and sometimes low?
What might cause interest rates to be low one year and high the next?
How do changes in the money supply affect the economy?
How do changes in government spending and tax policy affect the economy?

11. A couple of questions for you:
What is the current unemployment rate in the US?
What is fiscal policy?
What is a federal government budget deficit?
What is the Federal Reserve System?
What is monetary policy?

12. A Little Macroeconomic History:
19th and early 20th century, Classical Theory/Classical Economist
They focused on microeconomics.
They argued that market forces drive the
economy toward full employment, possibly
quickly – markets clear.
In Macro Speak “The economy self-corrects”
If unemployment exist, wages would fall to move the economy back to full employment.

13. A Little Macroeconomic History:
1929 to 1933: The Great Depression
Worldwide economic crisis.
Total amount of goods and services produced in the U.S. fell by more than 25%.
Unemployment increased to 25%.
A lot of unemployment for a long period of time.

15. A Little Macroeconomic History:
John Maynard Keynes, “The General Theory of Employment, Interest, and Money”
Replaced classical theory with theory based on:
Aggregate (Total) Demand
Wage and price rigidities – sticky!
Markets don’t clear and it may take a
long time for the economy to “self-correct”
Birth of Macroeconomics as a field separate from microeconomics

16. A Little Macroeconomic History:
Keynes believed government should intervene in the economy to stimulate the level of output and employment
During periods of low private demand, the government should take action to stimulate aggregate (total) demand to lift the economy to full employment.
Keynes was not a socialist. He was a capitalist. He simply felt capitalism could be unstable.

17. A Little Macroeconomic History:
What can the government do to stimulate aggregate total demand (private and public) to lift the economy out of recession?
Big, Big Question – does this stuff work?
Over 80 years later still debating this!

18. Chapter 4 MEASURING GDP AND ECONOMIC GROWTH
Notes and teaching tips: 4, 15, 26, 43, 49, 52, 53, 56, 57, 59, and 60.
To view a full-screen figure during a class, click the expand button.
To return to the previous slide, click the shrink button.
To advance to the next slide, click anywhere on the full screen figure.
Applying the principles of economics to interpret and understand the news is a major goal of the principles course. You can encourage your students in this activity by using the two features: Economics in the News and Economics in Action.
(1) Before each class, scan the news and select two or three headlines that are relevant to your session today. There is always something that works. Read the headline and ask for comments, interpretation, discussion. Pose questions arising from it that motivate today’s class. At the end of the class, return to the questions and answer them with the tools you’ve been explaining.
(2) Once or twice a semester, set an assignment, for credit, with the following instructions:
(a) Find a news article about an economic topic that you find interesting.
(b) Make a short bullet-list summary of the article.
(c) Write and illustrate with appropriate graphs an economic analysis of the key points in the article.
Use the Economics in the News features in your textbook as models.

19. Goals of the chapter - Define GDP (Gross Domestic Product)
Explain why GDP equals aggregate expenditure and aggregate income
Explain how the Bureau of Economic Analysis measures nominal GDP and real GDP
Explain the uses and limitations of real GDP as a measure of economic well-being

20. Production and GDP Gross Domestic Product (GDP) defined: Total value
of all final goods and services
produced for the marketplace
during a given year
within the nation’s borders

21. Production and GDP Total value… …of all final… …goods and services…
GDP is measured in dollar values (P x Q)
…of all final…
Final goods and services: sold to their final user
…goods and services…
Goods: tangibles
Services: intangibles

22. Production and GDP …produced… …for the marketplace…
Not included: land, stocks and bonds, used goods …
…for the marketplace…
With the intention of being sold
…during a given period…
Specific period of time
…within a nation’s borders
Regardless of who owns the resources

23. Gross Domestic Product
Final Goods and Intermediate Goods
A final good (or service) is an item bought by its final user during a specified time period.
An intermediate good is an item that is produced by one firm, bought by another firm, and used as a component of a final good or service.
Excluding the value of intermediate goods and services avoids counting the same value more than once – double counting.

24. Intermediate and Final Good
Tires taken from that pile and mounted on the wheels of the new car before it is sold are considered intermediate goods.
Tires taken from that pile to replace tires on your old car are considered final goods.
If we included the value of the tires (an intermediate good) on new cars and the value of new cars (including the tires), we would be double counting.

25. How to Calculate GDP Expenditure approach: GDP=C+I+G+(X-M)
Adding the value of goods and services purchased by each type of final user
Consumption goods and services purchased by households (C)
Private investment goods and services purchased by businesses (I)
Government goods and services purchased by government agencies (G)
Exports (X) purchased by foreigners minus imports (M). (X – M) = NX(net exports)

26. The Expenditure Approach to GDP
Consumption spending (C)
Part of GDP purchased by households as final users
70% of total production
Not included:
Consumption of imported goods and services
New home construction

27. The Expenditure Approach to GDP
Consumption spending (C)
Included - even though households don’t actually buy them
Total value of food products produced on farms that are consumed by the farmers and their families themselves
Total value of housing services provided by owner-occupied homes

28. The Expenditure Approach to GDP
Private investment (I)
Business purchases of plant, equipment, and software,etc.
New home construction
Changes in inventories (Note: “changes”)

29. The Expenditure Approach to GDP
Government purchases (G )
Spending by federal, state, and local governments on goods and services
Government outlays
Government purchases + Transfer payments

30. The Expenditure Approach to GDP
Transfer payments
Payment that is not compensation for supplying goods, services, or resources
Money redistributed from one group of citizens (taxpayers) to another (the poor, the unemployed, the elderly)
Included in government budgets as outlays
Not included in the government purchases component of GDP

31. The Expenditure Approach to GDP
Net exports (NX)
Total exports minus total imports
Total exports
U.S. production that is purchased by foreigners
Total imports
Americans’ purchases of goods produced outside of the United States

32. 2017
13,100
3,140
3,330
-570
______
19,000
EX = 2,339 and IM = 2,877

33. Gross National Product (GNP)
GNP is the value of goods and services produced anywhere in the world by the residents of a nation.
Nike’s income from shoe factories in Vietnam is part of US GNP and Vietnam’s GDP.
Toyota’s income from car plants in the US is part of Japan’s GNP and US GDP.
GNP = GDP plus payments received from the rest of the world minus income paid to the rest of the world