Dahee’s ECO 106 Achived Resources

Below are a bunch of resources that I think are helpful for ECO 106 students. If you have any questions come to an SI session or leave a comment below. You can also upload any of your helpful resources in the comment section!

 Tips

 The Economy in the Long Run

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Quarterly, Seasonally Adjusted Annual Rate, GDPC96 from FRED.
Gross domestic product (GDP), the featured measure of U.S. output, is the market value of the goods and services produced by labor and property located in the United States. Above is the GDP of the USA from 1947 Q1 to 2015 Q2.

Check out all of the numbers on the interactive graph by clicking here.

As you can see, the USA has been getting much more productive. The gray areas indicate on the graph recessions, which are periods of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

The economy follows a cycle, which includes peaks & troughs of the economy. The general way things have gone are as follows (reference the drawing below):

  1. The economy is booming and growing
  2. After some time of the growth, the economy hits a peak
  3. After the peak, the economy slows & enters a recession where GDP is lower than the quarter previous
  4. The economy recovers after a trough and begins the recovery & boom stage again
  5. In the recovery stage, the economy is growing back to the level before the recession
  6. After the recovery stage, growing beyond the recession, we are reaching levels we never have before

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Check out this illustrated in FRED:

fredgraph

 Supply & Demand

Supply & Demand is a crucial part to Macroeconomics.

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When looking at a supply and demand curve, it is important to know what each section means.

Supply has a positive relationship in the P-Q space because the law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises.

Demand has a negative relationship in the P-Q space because the law of demand states that all other things equal, the quantity demanded of a good falls when the price of the good rises.

The initial equilibrium is the best price and quantity demanded in the market.

Drawing & Shifting Supply & Demand Curves

When drawing a supply and demand graph, it is crucial to draw and label all parts of the graph.

  1. The Price-Quantity Space
  2. The Initial Supply & Demand Curve
  3. The Initial Equilibrium price and quantity

If you are going to shift the curve…

  1. Draw the initial supply & demand curve (all 3 steps above)
  2. Draw the shift in the curve (tip: it helps to use a second color)
    1. A decrease means shift left
    2. An increase means shift right
  3. Draw the new equilibrium
  4. Draw what happens to price and quantity

It is important to do these steps every time – you can’t memorize what happens each time you shift a curve!

See the chart below to see what happens to P & Q each time you shift a curve:

Capture

Price Floors & Ceilings

With supply and demand, there are price floors and price ceilings.

Key facts to remembers with price floors and ceilings:

  1. A price floor/ceiling can be above or below the equilibrium.
    1. It’s super easy to think that a floor can only be below, and a ceiling can only be above – but it can go both ways!
  2. When thinking of a price floor or ceiling, think of an actual room.
    1. Just like a real room, prices with a price ceiling can only go below the price ceiling (just like how everything in the room is below the ceiling).
      1. A price ceiling is a maximum, like rent-control
    2. Likewise, prices with a price floor can only go above the price ceiling (just like how everything in a room is above the floor).
      1. Price floors are a minimum, like the minimum wage
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Since they have to charge the price of the floor or above, they will charge the price of the floor and the quantity supplied will be greater than the quantity demanded, resulting in a surplus.
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Since they can charge any price above the floor, and the floor is below the equilibrium, the market will just charge the equilibrium price and we will remain at equilibrium.
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Since they can only charge prices at or below the ceiling, and this ceiling is below the equilibrium, they will charge the price of the ceiling and the quantity demanded will be greater than the quantity supplied, resulting in a shortage.
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Since they can charge prices at or below the ceiling, and the equilibrium is below the maximum price, they will charge the equilibrium and nothing will change.

The Federal Reserve

The Fed is the central banking system of the United States s duties today are to conduct the nation’s monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system and provide financial services to depository institutions, the U.S. government, and foreign official institutions.

Monetary policy is conducted by the Federal Open Market Committee (FOMC), which meets 8 times a year, or about every 6 weeks, in which they make decisions regarding Open Market Operations (OMOs). The FOMC consists of the 7 members of the Board of Governors, and the presidents of the 5 Federal Reserve District Banks including the New York Fed.

The Fed’s dual-mandate states that the primary responsibilities include controlling inflation as well as stabilizing economic activity.

Open Market Operations

OMOs are how the Fed controls the monetary base by the buying and selling of government bonds.

  • If the Fed wants to increase the monetary supply, they will buy government bonds to the public
    • The Fed gets the bonds, and the economy gets the money.
  • If the Fed wants to decrease the monetary supply, they will sell government bonds to the public
    • The economy gets the bonds, and the Fed gets the money (thus, pulling it out of the economy).

Videos and Handouts