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