FILE: 252N01.HTML

FALL 2005

DR. WILLIAM  SHINGLETON

FORMAT: NEW TIMES ROMAN, 14 FONT, PORTRAIT

ONLINE SAVED IN HTML

THESE NOTES ARE FOR AUGUST 23-25

 

INTRODUCTION AND ORGANIZATION

          SYLLABUS

          QUESTIONS ANY TIME /  HEARING

          CELL PHONES OFF

 

          ECONOMIC TRENDS FROM FRB CLEVELAND

                   RESEARCH DEPARTMENT

                   FEDERAL RESERVE BANK OF CLEVELAND

                   P.O. BOX 6387

                   CLEVELAND, OHIO 44101

 

          WEBSITE:  www.oocities.org/wsirius30

          ROSTER

          I D  CARDS

                   NAME                  SIGNATURE                 PHONE

                   E-MAIL

                   PERSONAL         PHYSICAL

 

          NO PREREQUISITES

                   FOR THE SECOND TIME AROUND

 

AND IN THE BEGINNING...HISTORY OF POLITICAL ECONOMY

 

EVOLUTION OF ECONOMIC THOUGHT

 

THOMAS ACQUINAS

          15TH CENTURY THEOLOGIAN

          JUST PRICE

          FAMINES

          OPPORTUNITY COST/ONLY ONE PRICE

          LONG RUN VS SHORT RUN POLICIES

          SOMETIMES THERE ARE NO GOOD ALTERNATIVES

 

          ADAM  SMITH

                   1776 PROTESTANT MINISTER

                   INVISIBLE HAND

                   PROFIT DRIVEN BEHAVIOR

                   GREATEST GOOD FOR THE GREATEST NUMBER

 

          ALFRED MARSHALL

                   SUPPLY AND DEMAND

                   PARTIAL EQUILIBRIUM:

                             STUDY EACH MARKET IN ISOLATION

                    EQUILIBRIUM/DISEQUILIBRIUM

                   ADJUSTMENT PROCESS IS MOST IMPORTANT

 

          JOHN KEYNES

                   GENERAL EQUILIBRIUM:

                             HOW THE PIECES FIT TOGETHER

                   BASIS FOR MODERN MACROECONOMICS
 

 

BASIC GROUNDWORK

 

          ECONOMICS IS APPLIED LOGIC/COMMON SENSE

                   BENEFITS

                   COSTS

                   UNINTENDED CONSEQUENCES

 

          ECONOMICS HAS ITS OWN LANGUAGE

                   COST VS PRICE

                   SAVING/INVESTMENT

 

                   MICROECONOMICS VS MACROECONOMICS

 

                   POSITIVE VS NORMATIVE ECONOMICS

                             WHAT IS VS WHAT SHOULD BE

                             POSITIVE IS TESTABLE

                             NORMATIVE GETS MORE EDITORIAL SPACE

                             WE CONCENTRATE ON THE POSITIVE

 

 

          SCARCITY

                   WHAT IS SCARCE?

                   EXAMPLES

 

 

          OPPORTUNITY COST

                    INDIANA (1999) 75000/PRISON 6000/EDUCATION

http://www.census.gov/mtis/www/current.html

http://www.census.gov/mtis/www/mtis.html

 

 

          ROLE OF INVENTORIES

                   WHY 129 PERCENT ? <DATA SOURCE: http://www.census.gov/mtis/www/current.html>

                   CHOICES

                   INVENTORIES AS SHOCK ABSORBERS

                   PROBLEMS

                             IMPERFECT KNOWLEDGE

                             TIME LAGS

                              PRODUCTION TAKES TIME

 

          ROLE OF MONEY IN THE SYSTEM

                    MONEY TALKS

                   EFFECTIVE DEMAND

 

 

          POLICY QUESTION

                    DOES GOVERNMENT ACTION DO MORE HARM THAN GOOD?

                             CASE STUDY: SOCIAL SECURITY

                             WINNERS VS LOSERS

                             WHO MAKES THE CALL?

 

MODELS AND TESTING

          CORRELATION VS CAUSATION

                   SUPERBOWL THEORY

                             29/38

                              BUT NOT 6 OF THE LAST 7/WAITING FOR JAN05

                             SOMETIMES IT'S JUST CORRELATION

 

          SUNSPOT THEORY (SEJ 6/82; 7/83)

                   DON'T BELIEVE IT ALL

 


MODELS AS GUIDES

          UNDERSTANDING THE REAL WORLD USING MAKE-BELIEVE

          IDEALIZED/SIMPLIFIED VERSION OF REALITY

          MODEL EXAMINES RELATIONSHIPS AMONG VARIABLES

                   EQUATIONS OR FUNCTIONS OR CURVES

          WHAT IS A GOOD THEORY OR MODEL?

                   PREDICTIVE PERFORMANCE

                   VALIDITY OF ASSUMPTIONS

 

USING GRAPHS TO EXPLAIN MODELS

          TOOLS OF UNDERSTANDING

          VISUAL REPRESENTATION

 

 

FUNCTIONS AND/OR CURVES AND/OR EQUATIONS

          A CURVE IS A PICTURE OF A RELATIONSHIP

 

          SHIFT VS LOCATION

 

 

 


PRODUCTION POSSIBILITIES

 

PRODUCTION POSSIBILITIES CURVE

          DEFINE FACTOR OF PRODUCTION

          ASSUMPTIONS

                   FULL EMPLOYMENT

                   EFFICIENT USE OF RESOURCES

          ATTAINABLE VS NON-ATTAINABLE

          BASIC ECONOMIC ISSUE: SCARCITY VS UNLIMITED WANTS

 

          **SKETCH PPC: NORTH KOREA

 


PRODUCTION POSSIBILITIES CURVE APPLICATIONS

          EXAMPLE: CIA AND SOVIET PRODUCTION/UNUSUAL TELEVISIONS

 

          EFFECTS OF INVESTMENT

                   CAPITAL GOOD

                             LASTS MORE THAN ONE TIME PERIOD

                             REPRODUCIBLE

                             USUALLY MAN-MADE

                             MOVES THE FRONTIER

                             INCREASES FUTURE CHOICES

          GROWTH AND DEVELOPMENT

          SAVING/U.S. LAST/ 2 PCT OF GDP (2004Q3 BEA)

          INVESTMENT/U.S. ABOUT 16 PCT OF GDP (2004Q3 BEA)

          EFFECTS

                   JOBS NO EFFECT

                   INCOME IS HIGHER

          CAPITAL GAINS AND INVESTMENT

          ATTAINABLE VS NON-ATTAINABLE

 

 


PERSPECTIVES

 

          OUR $11 TRILLION ECONOMY

                    MOSTLY CONSUMER GOODS (71 PCT 2003 BEA)

                    INVESTMENT (16 PCT 2004 BEA)

                    GOVERNMENT SERVICES (18 PCT 2004 BEA)

                    NET EXPORTS (-5 2004 BEA

 

          POVERTY

                    UNITED STATES

                             POOR FAMILY OF 4 INCOME $18,400

                             SOURCE: CENSUS BUREAU FOR 2002/AS OF JAN04)

         

                    WORLD STANDARD

                             POOR FAMILY INCOME $1,460

 

 

OUR MARKET SYSTEM

 

PROPERTY RIGHTS

          WASHING CARS

 

 

MARKET ALLOCATION / PRICE RATIONING

          EXAMPLE: OREO COOKIES

          MARGINAL THIS, MARGINAL THAT

 

          EXAMPLE: ARIZONA STATE UNIVERSITY

                   SENIORITY VS PRICE

          ALTERNATIVES

                   SOVIET LINES = WASTED TIME

                   POLISH APPLIANCES

 

          VOLUNTARY EXCHANGE   

                   BENEFICIAL DISTRIBUTION

                    BOTH PARTIES GAIN: SMITH'S INVISIBLE HAND IN ACTION

 

 

COMPETITIVE MARKETS/DEFINED

          MANY BUYERS

          MANY SELLERS

          EACH REACTS TO THE PRICE

 

          PRICE THEORY I:  LAW OF MARKETS

                    EXAMPLE: USED TEXTBOOKS

                    SUPPLY

                    DEMAND

                    DISEQUILIBRIUM PRICES

                    EQUILIBRIUM PRICE

         

          DEMAND CURVE

          SUPPLY CURVE

          3 KINDS OF PRICES

          DISEQUILIBRIUM PRICES 

                             INVENTORY CHANGES AS SIGNALS

                              NO INTENTIONAL MISTAKES

                             PRICES ADJUST

                             PROFITS TO THE SWIFT

 

          EQUILIBRIUM PRICE

 

QUIZ I