Macro 7

2. Lecture 7
Macroeconomics

5. Angus Maddison

7. 20161
AD
$2
$100
$30 World
15x
Northern Europe
North America
50x
1820

8. 1820 2018 Change
Population 1 billion 7.5 billion 7.5 x
Life Expectancy 30 years 72 years 42 +
Income Per
Capita Per Day
$2 $30 15 x

9. For the earth is full, and there is
enough and to spare; yea, I
prepared all things, and have given
unto the children of men to be
agents unto themselves.
Doctrine and Covenants 104:17
Year: 1834

11. "For a poor person
everything is
terrible. . . . we are
afraid of everything;
we depend on
everyone. No one
needs us. We are like
garbage that
everyone wants to
get rid of”
Blind woman from Tiraspol, Moldova 1997 (cited in Narayan, 2000, p.
65).

12. All human beings—male and female—are
created in the image of God. Each is a
beloved spirit son or daughter of
heavenly parents, and, as such, each has
a divine nature and destiny.

13. Economics
How we create
value for one
another
Cooperation

14. Can you make a
pencil?

15. Every Trade
One Price
TwoValues
Two Winners

16. Comparative
Advantage
Opportunity Cost

17. Yabut
Yes, but
Weight Costs and
Benefits

18. Where
is the
iPhone
made?

19. What is worth the most?

20. Optimize
Tradeoffs

21. Economic Models
Simplified Version of
Reality
Value in Prediction

22. Incentives Matter
Change Incentives
Change Behavior

23. Incentives are
more important
than goals

24. Consequences
matter more than
intentions

25. Unintended
Consequences

26. Macro Micro

27. What is wealth?
Anything people
value

28. What is capital?
Anything people
can use to create
value

29. Ideas
IntellectualHumanPhysical Financial
Inventions
Culture
Entrepreneurs
The Capitals of Innovation
Innovation
Human Beings
Markets

30. Innovation
AValuable Invention
Market-Successful
CreateValue

31. What happened to those 88 people?

32. Magic Machine

35. Trade is a
Magic Machine

36. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Equilibrium
where market price is at a level where
Quantity Demanded = Quantity Supplied
Supply
Demand

37. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Surplus
where market price is above equilibrium price
Quantity Demanded < Quantity Supplied
Supply
Demand
QD QS
QS - QD = 7 - 3 = 4
Price is too high
too many produced
lower
price

38. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Shortage
where market price is below equilibrium price
Quantity Demanded > Quantity Supplied
Supply
Demand
QS QD
QS - QD = 2 - 8 = -6
Price is too low
not enough produced
raise
price

39. $0
$5
$10
$15
$20
0 10 20 30 40 50 60
Supply
Demand
Wage
Workers
Equilibrium
Wage
30 workers
30 jobs
no
unemployment
Minimum Wage
40 workers
20 jobs
20 unemployed
workers
Minimum Wage
20 workers
get a raise
10 workers
lose job
10 new
unemployed
workers
Minimum
Wage

40. Chapter 6
GDP

41. Adam Smith
1723-1790 Scotland
An Inquiry Into
the Nature and
Causes of the
Wealth of Nations
1776

42. How is wealth created?
How is wealth measured?

43. GDP
Gross Domestic Product
The market value of all
final goods and services
produced in a country in
a given time

44. GDP =
C = Consumption
I = Investment
G = Government
X = Exports
M = Imports

45. GDP =
C + I + G + (X - M)

46. GDP per
Capita
GDP per Person
Average GDP

47. Percentage
Change
new number - old number
old number

48. GDP - 2018 $87 trillion
Population 7.63 billion
GDP Per Capita $11,464
GDP/Capita/Day $31.41

49. GDP $21 trillion
Population 327 million
GDP Per Capita $64,220
United States
Per Day $176

50. GDP $12.7 trillion
Population 1.4 billion
GDP Per Capita $9,071
Per Day $25
China

51. Make me
an iPhone.
Sorry, I have
the atoms but not
the knowledge.
We need
innovation

52. Nominal
vs.
Real

54. When you have lines waiting to buy your
product, you can do two things:
make more, or raise prices

57. Inflation
Cause:
Printing money faster than
making goods
Effect:
Rising prices

58. Nominal
Current prices
Current quantity

59. Real
will always have
a base year

60. Real
Constant prices
Current quantity

61. Pizza Soda
Year Price Qty Total Price Qty Total
Total
Total
%
Change
2010 $5 100 $500 $1.00 50 $50 $550
2011 $6 134 $804 $1.50 40 $60 $864 57.1%
2011* $5 134 $670 $1.00 40 $40 $710 29.1%
2012 $10 150 $1500 $2.00 30 $60 $1,560 80.6%
2012* $5 150 $750 $1.00 30 $30 $780 9.9%
* Prices adjusted to 2010 Rates
Real versus Nominal GDP

62. GDP Deflator
Nominal GDP
Real GDP= x 100

63. GDP Inflation Rate
GDP DeflatorYear 2 - GDP DeflatorYear 1
GDP DeflatorYear 1= x 100

64. Pizza Soda
Year Price Qty Total Price Qty Total
Total
Total
%
Change
2010 $5 100 $500 $1.00 50 $50 $550
2011 $6 134 $804 $1.50 40 $60 $864 57.1%
2011* $5 134 $670 $1.00 40 $40 $710 29.1%
2012 $10 150 $1500 $2.00 30 $60 $1,560 80.6%
2012* $5 150 $750 $1.00 30 $30 $780 9.9%
* Prices adjusted to 2010 Rates
Real versus Nominal GDP

65. Problems with GDP
Inequality
Types of Goods and Services
Happiness
Others?

66. Chapter 7
Wealth of
Nations

67. Ideas
IntellectualHumanPhysical Financial
Inventions
Culture
Entrepreneurs
The Capitals of Innovation
Innovation
Human Beings
Markets

68. Trust

69. Rule of 70s
Doubling time
=
70
r

70. Culture
Institutions
Property Rights
Honest government
Political stability
A dependable legal system
Competitive and open markets

71. The Market for Money
Interest is the rent we pay
when we borrow money.
Earn money
Rent money

72. The Market for Money
Savings/Borrowings
Interest
Rate
Demand
Supply
5%
$400

73. Chapter 9

74. Trust

76. Worldview
Political
Legal
Economic

77. I.O.U.
$1
Dr. Pooley

78. I.O.U.
$100
May 13, 2020
Dr. Pooley

79. I.O.U.
$100 plus 5%
May 13, 2020
Dr. Pooley

80. I.O.U.
$100 plus 10%
May 13, 2020
Dr. Pooley

81. I.O.U.
$100
Coupon Rate 10%
Each Year
May 13, 2030
Dr. Pooley
$10 $10 $10 $10 $10 $10 $10 $10 $10 $10

82. Bonds
Special IOU
Price and Interest Rate go
in opposite directions

83. OPM
Other People’s
Money
Leverage

84. Leverage Ratio
Debt
Equity
=

85. Leverage Ratio
Other’s Money
My Money
=

86. Leverage Ratio
$50
$50
=1

87. Leverage Ratio
$90
$10
=9

89. Individual
Mortgages
Package
as a
Security
Share
in the
Security
$200,000 $200,000 $200,000 $200,000 $200,000
$1,000,000
$20,000
Each
50
$1,000,000
8.0%
7.0%
$80,000
$70,000
Potential Profit
$10,000
Only $64,000
Short $6,000