Lecture Issues in economics today - Chapter 7

When you finish this chapter, you should: Define the key terms of economics and opportunity cost and understand how a production possibilities frontier exemplifies the trade-offs that exist in life, distinguish between increasing and constant opportunity cost and understand why each might happen in the real world, analyze an argument by thinking economically, while recognizing and avoiding logical traps.
Nội dung trích xuất từ tài liệu:
Lecture Issues in economics today - Chapter 7 Chapter 7 Every Macroeconomic Word You Have Ever Heard: Gross Domestic Product, Inflation, Unemployment, Recession and Depression McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Chapter Outline • Measuring the Economy • Real Gross Domestic Product and Why it is Not Synonymous with Social Welfare • Measuring and Describing Unemployment • Business Cycles McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Microeconomics vs. Macroeconomics • Microeconomics: that part of the discipline of economics that deals with individual markets and firms • Macroeconomics: that part of the discipline of economics that deals with the economy as a whole McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Gross Domestic Product • Gross Domestic Product: the dollar value of all of the goods and services produced for final sale in the United States in a year – “Final Sale” avoids double counting of intermediate production – “Sale” implies exclusively market activities – “produced..in the United States” implies that Hondas produced in the US count but Fords produced in Mexico do not. McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Measuring Prices • Market Basket: what average people buy and in what quantities they buy it • Base Year: year in which the market basket is established and year to which all other prices are compared • Price of the Market Basket in the Base Year: (PBYMB) national average of the total cost of the market basket for the first month in the first year. McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Price Index • Price Index: a device that centers the price of the market basket around 100 • Consumer Price Index: the price index based on what average consumers buy PATMB CPI= PBYMB *100 WhereP MBisthepriceofthemarketbasketat“anytime”and AT PBYMBisthepriceofthemarketbasketinthebaseyear McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Measuring Inflation • Inflation Rate: the percentage increase in the consumer price index CPIEYCPIBY Inflationrate=*100% CPIBY WhereCPIEYistheConsumerPriceIndexattheendoftheyearand CPIBYistheConsumerPriceIndexatthebeginningoftheyear. McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. The CPI and Inflation in Selected Year Base Years (1982-1984) Year CPI Inflation Rate 1930 16.1 1950 25.0 1970 39.8 1990 133.8 1995 153.5 1996 158.6 3.3 1997 161.3 1.7 1998 163.9 1.6 1999 168.3 2.7 2000 174.0 3.4McGrawHill/Irwin ©2002TheMcGrawHillCompanies,Inc.,AllRightsReserved. Cost of Living Adjustments • Cost of Living Adjustment or COLA: a device that compensates people ...