Econ 4.3

Friday, February 5, 1999

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Lecture notes:  

General Outline of Unit

• Circular Flow of Income
  • Withdrawals, Injections
• Macroeconomic Roots
  • The Great Depression
    • Classical Model
    • Marxist Challenge
    • Keynesian Challenge
• Aggregate Output
  • Gross Domestic Product (GDP)
• Business Cycles
  • Recession
  • Expansion
  • Historical Record
• Other Macroeconomic Vital Signs
  • Unemployment
  • Inflation
• Macroeconomic Analytic Model
  • Aggregate Demand (AD)
  • Aggregate Supply (AS)

Circular Flow of Income (continued)

Withdrawals (W) and Injections (J)

• Aggregate Output (GDP)
  • The dollar value of all final goods and services produced
  • Final Good: a product which is ready to be used by consumers
• Two Key Characteristics of GDP
  • It grows over time
  • It fluctuates as it grows
• An Economic Rollercoaster
  • Economic Output
  • Economic Growth Rate
    • Inflation Rate
  • Rise in general price level
  • Unemployment rate

Video: Unemployment and the Great Depression

• As economic growth decreases, unemployment increases
• Keynesian Explanation: first to explain why the economy goes into recession and stays there
• Business Cycles
  • Cyclical movements in output, prices and unemployment
  • Business cycles differ
• The Typical Course of Business Fluctuating (see page 127 in text)
  
• Recession
  • Growth rate of GDP falls
  • Firms decrease production
  • Unemployment Rises
• Expansion
  • GDP growth rate rises
  • Firms increase production
  • Unemployment Falls