AP Econ Week#6 Fall 2016

Economics 10/10/16 http://mrmilewski.com OBJECTIVE: Introduction to Macroeconomics: Unemployment, inflation, and growth AP Macro-I.E Language objective: SWBAT define essential vocabulary on macroeconomic issues that associated with unemployment, inflation, and growth. In addition, swbat write notes on issues and read and write answers to questions regarding the objective. I. Notes#11 -Do now: What is GDP and how is it used to measure the health of the economy? II. Homework -Begin Reading Chapter#23 -Answer Questions #1-3 on page 483 and Problem #1 on page 484.

Answer to opener C+I+G+F=GDP Consumer spending Investment (Business spending) Government Spending F=Foreign (Exports minus Imports)

Introduction to Macroeconomics With all of the economic activity going on it a country, it would be an infinite amount of data that would have to be analyzed to make decisions about the economy. Macroeconomists focus on just a few statistics when analyzing the economy. The three main ones are: 1. Real GDP 2. Unemployment 3. Inflation

Real GDP U.S. GDP 1949-2009 Real Gross Domestic Product (GDP) measures the value of final goods and services produced within the borders of a country over the course of a year. If real GDP is larger this year than the previous year, output increased. Greater output creates greater consumption possibilities. Greater consumptions means more goods and services produced and consumed. A large and growing real GDP is a good thing.

Unemployment When you don’t have a job but you are willing to work and looking for work. High rates of unemployment is not a good thing because it indicates that the country is not using a large portion of a very important resource: US! Our talents and skills as workers. This is a big waste because we count as a loss all of the goods and services that unemployed workers could have produced.

Inflation Inflation is an increase in the overall level of prices. If inflation is high, it will cost more to purchase goods and services in the current year than the previous year. This is not a good thing because if one’s income is not rising as fast as the prices of goods and services it is consuming, they will not be able to purchase as much and their standard of living will fall.

Overall These three statistics are the standards by which economists keep track of long-run growth and short-run fluctuations. We will use these to build economic models of both long-run and short-run to further understand how we try to maximize growth and minimize unemployment and inflation.

Economic Growth Prior to the Industrial Revolution, there was virtually no economic growth. A peasant from Rome in 500 BCE was really no better off than his ancestor was 1000 years later. The Industrial Revolution brought about mass production, automation, and increases in research and development that enhanced technology. This triggered modern economic growth. This allowed countries who became industrialized to not only have output growth, but more importantly, output per person growth.

Savings and Investment Savings occurs when consumption is less than current output (or when current spending is less than current income). Investment happens when resources are devoted to increasing future output. An example of investment is building a new R&D facility so scientists can invent more fuel efficient cars. The term investment in economics differs from common usage. See Consider This… on page 476.

Savings and Investment

Exit Question#11 11.) If you currently are not working and you are no looking for a job, are you unemployed? Explain.

Homework Tonight Questions #1-3 on page 483 and Problem #1 on page 484.

Economics 10/11/16 http://mrmilewski.com OBJECTIVE: Review supply and demand and continue introduction to Macroeconomic issues: Uncertainty, expectations, and Shocks. AP Macro-I.E Language objective: SWBAT define essential vocabulary on macroeconomic issues that associated with uncertainty, expectations and growth. In addition, swbat write notes on issues and read and write answers to questions and problems regarding the objective. I. Administrative Stuff -Attendance -Review Homework Assignment#9 -Continue discussion of GDP II. Homework -Answer Questions #4-8 on page 483 and Problem # 2&3 page 484. -Finish Reading Chapter#23

Homework Tonight Questions #4-8 on page 483 and Problem #2-4 on page 484.

Economics 10/12/16 http://mrmilewski.com OBJECTIVE: Macroeconomic issues: Uncertainty, expectations, and Shocks. AP Macro-I.E Language objective: SWBAT define essential vocabulary on macroeconomic issues that associated with uncertainty, expectations and growth. In addition, swbat write notes on issues and read and write answers to questions and problems regarding the objective. I. Daily Opener#12: The Global Perspective chart on page 475 lists countries in order by GDP per person. Describe the three adjustments to each country’s GDP that is done so the chart is valid. Notes#12 -notes on prices II. Homework -Study for the Ch#23 Test NOTICE: Parent Teacher Conference TOMORROW 5-8PM NOTICE: Chapter#23 Test Friday October 14th

Uncertainty The future in uncertain and knowing what to save and where to invest is difficult. Firms try to make good decisions on investment projects, but they can produce disappointing results or even fail. This means that macroeconomics has to take into account expectations about the future.

Expectations Expectations are extremely important for two major reasons: The effect that changing expectations have on current behavior. If firms grow pessimistic about future returns on investments, they will invest less. This will lead to less production and more importantly, less consumption. The second reason is what happens when expectations are not met. Firms often have to deal with shocks, or situations when they are expecting one outcome and another outcome occurs.

Shocks Demand shocks are unexpected changes in the demand for goods and services. Supply shocks are unexpected changes in the supply for goods and services. Shocks can be both positive and negative. A positive one is where demand is higher than expected and a negative is the opposite. Most economists believe that short-run fluctuations in the economy are the result of demand shocks.

Why are Demand Shocks a Problem? Demand shocks are a problems because the price of many goods and services are inflexible, or slow to change. These are known in economics as “sticky prices”. When prices are sticky, the economy is forced to respond to shocks in the short-run through changes in output and employment rather than through prices.

Demand Shocks and Flexible Pricing Referring to the previous graph, if prices are flexible, any shock to demand can be quickly adjusted to by raising or lowering prices. This would keep production constant and employment levels would not change. Firms would always need the same number of workers and they would always produce the same amount of output.

Demand Shocks and Sticky Prices If prices are sticky, or inflexible, demand shocks will result in short-term changes in production and employment. If demand drops below the optimum level, production would have to drop to match demand. If it rises above optimal level, production would have to increase to match demand. This is very costly to a firm to have keep raising or lowering production levels and hiring or laying off workers.

Generally, firms will keep their production levels at the optimum, and build an inventory. This can be a problem because the cars piling up in inventory are not paid for. The company has paid for the costs to build it, but received no revenues for selling it. This will eventually lead to a cut in production and lay offs of employees. Which will then lead to the economy receding, GDP falling and unemployment rising.

Exit Question#12 12.) What are shocks? (no not on your car’s suspension!)

Homework Tonight Study for the Ch#23 Test on Friday.

Economics 10/13/16 http://mrmilewski.com OBJECTIVE: Macroeconomic issues: Uncertainty, expectations, and Shocks. AP Macro-I.E Language objective: SWBAT define essential vocabulary on macroeconomic issues that associated with uncertainty, expectations and growth. In addition, swbat write notes on issues and read and write answers to questions and problems regarding the objective. I. Daily Opener#13 -Read “The Last Word” p.480-481 -How has the computer aided supply chain management greatly impacting the Economy? How do we know? II. Notes#13 -ACDC Econ: Unit#2 Macro III. Homework -Study for the Ch#23 Test NOTICE: Parent Teacher Conference Tonight 5-8PM NOTICE: Chapter#23 Test Friday TOMORROW

Exit Question#13 13.) What does tomorrow’s test cover?