lOMoARcPSD|2767136
Unit 13 Notes
UNIT 13 NOTES
Economic fluctuations and unemployment
How economies fluctuate between booms and recessions as they are continuously hit by
good and bad shocks
- Fluctuations in the total output of a nation(GDP) affect unemployment, and
unemployment is a serious hardship for people
- Economists measure the size of the economy sing the national accounts: these
measure economic fluctuations and growth
- Households responds to shocks by saving, borrowing, and sharing to smooth their
consumption of goods and services
- Investment spending by firms (on capital goods) and households (new housing)
fluctuates more than consumption.
Key Macroeconomic Objective: Improve the standard of living
SOME KEY MACROECONOMIC TOOLS
Linear regression line
- The best-fitting line through a set of data
- When it is upward solping, it means that higher values of the variable on the
horizontal axis are associated with higher values of the variable on the vertical axis
- Basic and commonly used type of predictive analysis
- Examines
o Does a set of predictor variables do a good job in predicting an outcome
variable?
o Which variables in particular are significant predictors of the outcome
variable, and in what way do they impact the outcome variable?
- Regression estimates are used to explain the relationship between on dependent
variable and one or more independent variables.
- The simplest form of the regression equations with one dependent and independent
variable: y = mx + c
- Three major uses for regression analysis
o Determining the strength of predictors (strength of the relationship)
o Forecasting an event
o Trend forecasting
Correlation may not be causation
- Reverse Causality: A two way causal relationship in which A affects B, and B also
affects A.
o X causes Y
- Correlation: a statistical associations in which knowing the value of one variable
provides information on the likely value of the other. Example, high values of one
variable being commonly observed along with high values of the other variable. It
can be positive or negative. It does not mean there is a casual relationship between
the variables.
o Two events are related in systematic way
, lOMoARcPSD|2767136
Unit 13 Notes
Post hoc Fallacy
- Because event A precedes event B, A caused B.
Fallacy of Composition
- What is good for one person may not be good for someone else.
- Example, saving for one individual is good, however, if everyone saved there would
be a decrease in consumption
Logarithmic scale
- A way of measuring a quantity based on the logarithmic function, f(x) = log(x).
converts a ratio to a different and it very useful for working with growth rates
- Two main reasons to use logarithmic scales in charts and graphs
o The first is to respond to skewness towards large values.
o To show percentage change or multiplicative factors.
13.3 MEASURING THE AGGREGATE ECONOMY USING
GDP
GDP = a measure of aggregate output or production in the national accounts
o Aggregate output: the total output in an economy, across all sectors and
regions
GDP is the total value of all final goods and services produced within the boundaries
of a country in a particular period (usually one year).
o TOTAL VALUE: aggregate for the economy as a whole of the values of goods
and service (prices times quantities)
o FINAL
Main problem of national accountants is how to avoid double
counting
Final goods: used or consumed by individuals, households and firms
Intermediate goods: bought to be used as inputs in producing other
goods, processed further before they are sold to end users.
o BOUNDARIES OF A COUNTRY: only production within a country, therefor GDP
is a geographic concept.
o GROSS: no provision for depreciation of capital goods and machinery are
taken into account.
- National Accounts: the system used for measuring overall output and expenditure
in a country
o They are statistics published by the national statistical offices (Statistics South
Africa and the SA Reserve Bank) that use information about individual
behaviour to construct a quantitative picture of the economy as a whole.
o Used to determine how the economy is performing in respect of a range of
objectives such as economic growth and employment creation.
- Reflect the level and compositions of total economic activity in a particular period
- Production=income=spending
o Production is sold, we get income , which is then spent on production
Unit 13 Notes
UNIT 13 NOTES
Economic fluctuations and unemployment
How economies fluctuate between booms and recessions as they are continuously hit by
good and bad shocks
- Fluctuations in the total output of a nation(GDP) affect unemployment, and
unemployment is a serious hardship for people
- Economists measure the size of the economy sing the national accounts: these
measure economic fluctuations and growth
- Households responds to shocks by saving, borrowing, and sharing to smooth their
consumption of goods and services
- Investment spending by firms (on capital goods) and households (new housing)
fluctuates more than consumption.
Key Macroeconomic Objective: Improve the standard of living
SOME KEY MACROECONOMIC TOOLS
Linear regression line
- The best-fitting line through a set of data
- When it is upward solping, it means that higher values of the variable on the
horizontal axis are associated with higher values of the variable on the vertical axis
- Basic and commonly used type of predictive analysis
- Examines
o Does a set of predictor variables do a good job in predicting an outcome
variable?
o Which variables in particular are significant predictors of the outcome
variable, and in what way do they impact the outcome variable?
- Regression estimates are used to explain the relationship between on dependent
variable and one or more independent variables.
- The simplest form of the regression equations with one dependent and independent
variable: y = mx + c
- Three major uses for regression analysis
o Determining the strength of predictors (strength of the relationship)
o Forecasting an event
o Trend forecasting
Correlation may not be causation
- Reverse Causality: A two way causal relationship in which A affects B, and B also
affects A.
o X causes Y
- Correlation: a statistical associations in which knowing the value of one variable
provides information on the likely value of the other. Example, high values of one
variable being commonly observed along with high values of the other variable. It
can be positive or negative. It does not mean there is a casual relationship between
the variables.
o Two events are related in systematic way
, lOMoARcPSD|2767136
Unit 13 Notes
Post hoc Fallacy
- Because event A precedes event B, A caused B.
Fallacy of Composition
- What is good for one person may not be good for someone else.
- Example, saving for one individual is good, however, if everyone saved there would
be a decrease in consumption
Logarithmic scale
- A way of measuring a quantity based on the logarithmic function, f(x) = log(x).
converts a ratio to a different and it very useful for working with growth rates
- Two main reasons to use logarithmic scales in charts and graphs
o The first is to respond to skewness towards large values.
o To show percentage change or multiplicative factors.
13.3 MEASURING THE AGGREGATE ECONOMY USING
GDP
GDP = a measure of aggregate output or production in the national accounts
o Aggregate output: the total output in an economy, across all sectors and
regions
GDP is the total value of all final goods and services produced within the boundaries
of a country in a particular period (usually one year).
o TOTAL VALUE: aggregate for the economy as a whole of the values of goods
and service (prices times quantities)
o FINAL
Main problem of national accountants is how to avoid double
counting
Final goods: used or consumed by individuals, households and firms
Intermediate goods: bought to be used as inputs in producing other
goods, processed further before they are sold to end users.
o BOUNDARIES OF A COUNTRY: only production within a country, therefor GDP
is a geographic concept.
o GROSS: no provision for depreciation of capital goods and machinery are
taken into account.
- National Accounts: the system used for measuring overall output and expenditure
in a country
o They are statistics published by the national statistical offices (Statistics South
Africa and the SA Reserve Bank) that use information about individual
behaviour to construct a quantitative picture of the economy as a whole.
o Used to determine how the economy is performing in respect of a range of
objectives such as economic growth and employment creation.
- Reflect the level and compositions of total economic activity in a particular period
- Production=income=spending
o Production is sold, we get income , which is then spent on production
