Lecture Notes

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Lecture Notes

• September 25, 2003
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• printing PowerPoint slides

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Macroeconomics

• The economy as a whole
• Microeconomics individual buyer, firm, industry
• The economy as a whole from a micro point of
  view general equilibrium theory
• Macroeconomics is (somewhat) different
• aggregation deal with firms collectively,
• consumers collectively
• Reconciliation of macro, general equilibrium
  assume individuals really are identical.

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However ,

• For the purpose of this course, in a lot of
  macro, we lose sight of micro altogether.
• Example money.
• Question are there microeconomic foundations
  for macro? Should there be?
• If there are, its hard.
• Conclusion you should be thinking about the
  relation between macro and micro
• But it wont always be clear.
• Dont worry about it

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Course Outline

• Basic concepts National Income Accounting
• The economy in the long run
• Economic Fluctuations
• Money
• International economy

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National Income Accounting

• NIPA (National Income and Product Accounts)
• I may not tell you which chapters to read
• See course outline
• More detail than text.

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Why are we interested in national income
accounting?

• To read the data
• But mostly to understand
• INCOME PRODUCT,
• SAVING INVESTMENT

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Income statement vs. Balance sheet

• Income statement transactions related to
  current production
• Units dollars per unit of time (usually, per
  year)
• Flows, not Stocks
• GNP Gross National Product per year
• T-accounts on income statements, expenditures
  on LHS, receipts on RHS
• Expenditures what youre paying for purchases
  of goods or productive services
• Receipts what youre receiving

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T-Accounts
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Balance sheet

• Also a T-account
• But the column heads are Assets and Liabilities,
  not Expenditures and Receipts
• These are in units of , not per unit of time
• Stocks, not Flows
• Example a firms assets are its physical
  capital its liabilities are bonds issued.
• We dont deal with balance sheets here.

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Transactions

• Only transactions related to current production
• Consider these transactions
• 1 firm, IBM, pays Jones 1000 in wages
• Jones buys 1 computer from IBM for 1000.
• Lets do the T-accounts corresponding to these
  transactions.

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Note

• Each transaction enters twice once as an
  expenditure, once as a receipt.
• Do you suppose thats why they call it
  double-entry accounting?
• (Of course, you are under no obligation to use
  the same labels in both entries of a single
  transaction).

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Circular flow