ECO102 Lecture 01

Pre-Lecture

ECO102 Pre-Lecture 01

Lecture

ECO102 - Week 01.pdf

• Macroeconomics is about short run disequilibrium.
• Theory about government behaviour.
• When the economy is doing poorly, the govt spends more money to stimulate, or vice versa.
• If you know what the govt is going to do to manipulate consumers, then you can't be manipulated by understanding macroeconomics.
• Since WW2 (MOC) countries band together to manipulate the economy.
• Graunt:
  • He was able to predict the population.
  • He got a measure of life expectancy.
  • Church records gave him birth records.
  • Tombstones gave him life expectancy.
  • He was able to forecast population.
  • Graunt's contribution to statistics :: Forecasted population and life expectancy using church records and tombstones
• Three ways to measure and Economy
  • GDP
  • GDE
  • GDI
  • Three approaches to measuring the economy :: GDP (Production), GDE (Expenditure), GDI (Income)
• Double counting problem
  • Value Added in Macroeconomics
  • GDP
  • NDP
  • Home Production
  • Double counting is avoided by using :: The value added method
• GDE
• GDI
• Ex:
  • GDE = GDI
  • Demonstrate that GDI = GDE = 60
  • Household consumption goes into GDE
  • Europe involves illegal activites into GDP
    • Numbers would be $50\mathrm{\%}$ higher if they included them.
    • Europeans look at relative prices for legal countries then ported them over. Look at arrest records to try to estimate based on the sample from the other countries.
    • The method was somewhat accurate relative to the studies.
    • When Italy added illegal activites, they boosted their GDP
    • Then everyone else did it, so order went back.
• Domestic GDP
  • Produced in canada
• National GNP
  • Produced by a canadian
  • Difference between GDP and GNP :: GDP is location-based (within borders), GNP is ownership-based (by nationals)
• Ex:
  • Luxembourg
  • Most people working there, don't live there.
  • They have a high GDP but not a high GNP.
• GDP = GDE = GDI
• Ex:
  • Inventory is investment spending
  • When a firm produced but didn't sell.
  • You produce $\mathrm{\$}1000$ of stuff not sold, $\mathrm{\$}1000$ is inventory in 2025
  • Sell in 2026 $\mathrm{\$}800$, so Inventory $\downarrow$ but GDE $\uparrow$
  • Purchase in one year, might be use in subsequent years.
• Income Inequality
  • Follows a Normal Distribution
  • Bottom half of canada in income is $18\mathrm{\%}$ of the income.
  • Top $1\mathrm{\%}$ of income has $10\mathrm{\%}$ of the income.
  • RP10 Ratio
  • $w=p\cdot MP$ is inequality a bad thing?
  • Wage is price times marginal product
  • Example:
    • 4 person household
    • $\begin{array}{cc}\text{Mom}& 200\\ \text{Dad}& 300\\ \text{Brother}& 100\\ \text{Sister}& 400\\ \text{Average}& 250\\ \text{Median}& 250\end{array}$
    • When average and median are equal, dataset is not skewed.
    • $P_{75}$ $75\text{th}$ percentile
    • $P_{75}=350$
    • $P_{25}=150$
    • $P_{50}=\text{Median}$
    • $\underset{\begin{array}{c}\text{Interquartile}\\ \text{Range}\end{array}}{\underbrace{IQR}}=350-150=200$
    • $R{P}_{25}=\frac{P_{75}}{P_{25}}=\frac{350}{150}=\frac{7}{3}=2.33333333333333$
    • The richest are $2.3$ times richer than the poorest.
  • Ex:
    • Gini Coefficient
    • Big means inequal distribution
    • Small means equal distribution
    • Vertically we have cumulative percentage of income
    • Horizontally we have the cumulative percentage of population.
    • Axes of a Lorenz Curve :: Vertical: Cumulative % of Income, Horizontal: Cumulative % of Population
  • Ex Gini Coefficient:
    • $6\cdot 50+3\cdot 100+1\cdot 400=1000$
    • Distribution of incomes
    • $10$ people, a band of income
    • $$\begin{array}{cc}\text{Population \%}& \text{Income \%}\\ 0& 0\\ 60& 30\\ 90& 60\\ 100& 100\end{array}$$

      \begin{document}
        \begin{tikzpicture}[x=0.06cm, y=0.06cm]
      	% Draw grid for better readability
      	\draw[very thin, gray!20] (0,0) grid (100,100);
      	
      	% Draw axes
      	\draw[thick, ->] (0,0) -- (110,0) node[right] {Cumulative \% of Population};
      	\draw[thick, ->] (0,0) -- (0,110) node[above] {Cumulative \% of Income};
      	
      	% Draw the Line of Equality (45-degree line)
      	\draw[thick, blue, dashed] (0,0) -- (100,100) node[midway, above left, rotate=45] {Line of Equality};
      	
      	% Plot the Lorenz Curve based on the provided data points
      	% Points: (0,0), (60,30), (90,60), (100,100)
      	\draw[very thick, red, mark=*] plot [smooth, tension=0.7] coordinates {
      	  (0,0) (60,30) (90,60) (100,100)
      	};
      	
      	% Add labels for the specific data points
      	\filldraw[black] (60,30) circle (1.5pt) node[below right] {(60, 30)};
      	\filldraw[black] (90,60) circle (1.5pt) node[below right] {(90, 60)};
      	
      	% Legend box
      	\matrix [draw, fill=white, below left] at (90,90) {
      	  \node [blue, dashed, label=right:Equality] {}; \\
      	  \node [red, label=right:Lorenz Curve] {}; \\
      	};
      	
      	% Boundary lines for the 100% square
      	\draw[thin, gray] (100,0) -- (100,100) -- (0,100);
      	
      	% Axis ticks
      	\foreach \x in {0, 20, 40, 60, 80, 100} {
      	  \draw (\x, 1) -- (\x, -1) node[below] {\small \x};
      	  \draw (1, \x) -- (-1, \x) node[left] {\small \x};
      	}
        \end{tikzpicture}
      \end{document}
      

    • Calculate the areas underneath (B)
    • Areas:
      • A+B: ${\int }_{0}100x\text{differential}x=5000$
      • B: $900+900+600+200+450=3050$
    • $\text{Gini}=\frac{A}{A+B}$
    • $\text{Gini}=\frac{5000-3050}{5000}=\frac{39}{100}=0.39$
    • Does this economy look like it's equal?:
      • No
    • Compare to other country figures:
      • South africa has a gini of $63$
      • We have $39$
      • Much less disparity than south africa.
      • Canada has gini of $31.7$
• Outcomes of education
  • Median income for university graduates is $64$ bands but otherwise is $45$ bands
  • Using the quartiles is necessary for a good analysis.