On Homework 1

A few comments about homework #1. It is due the next class. (I know I put the date Wednesday the 21st. I got confused when writing it up. It is due Tuesday the 20th or, in the event I go to the inauguration, it will be due Thursday the 22nd.)

I expect you to be able to complete the first problem. The second problem will come with discussion at the next class and you will have the opportunity to complete that part of the assignment.

In the first problem you are asked to categorize, if categorizable, as C, I, G, X or M. I was probably going to clarify that when we look at Table 1.1.5. But we did talk about this in some fashion.

I mentioned how GDP was spending by consumers (C), businesses (I), governments (G) and foreigners (X).

C is known as Consumption expenditures by households

I is known as Investment spending by businesses. Investment is spending on new capital equipment (factories, machines, software). The term "investment" has a very particular meaning in this case. This is not to be confused with "buying stock". Although as consumers we like to call that "investment", to the economist, it is Saving. Investment, here, is merely business purchase of capital. Note also, this is not business spending on intermediate goods. Intermediate goods get "completely used up" in the production of a final good. For example, building a patio deck out behind your house. The lumber and nails are intermediate goods the contractor buys for building the deck. Those are intermediate goods. However, the hammer, saws, etc, that they use over and over again for your job and other jobs is not "completely used up". That is the difference.

G is known as Government Spending. This is the purchases of goods and services by governments.

X is known as Exports. This is the part of our production that is bought by foreigners.

M is known as Imports. This is the part of our income that we spend on goods produced by foreigners.

When we calculate GDP we sum up the values of these components (but subtract off Imports)

so GDP = C + I + G + X - M or sometimes written C + I + G + (X - M)

Where sometimes we call X - M the net exports, or exports net of imports. This is commonly referred to as the trade balance. I'll dwell on that in class next time when we look at the numbers.

We can associate these eventually with the lines on the tables that were handed out in class. Looking at table 1.1.5,

C is line 2
I is line 6
G is line 20
X is line 14
M is line 17

We'll go over the table at the next class.

But do the readings in chapter 21. In particular, pages 387 to 393. These readings, our class discussion on Thursday (15th) and the comments in this blog entry should allow you to complete problem 1.

If you have any questions please email me at jjulian@iup.edu or IM me at CinciDood.

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Just a few other comments:

I plan to be in DC for the weekend and maybe through the inauguration. I may not have extensive access to the internet. (My friend doesn't have wireless so I have to use his internet.) Please be patient if you're looking for replies.

The class is quite chatty (in the positive way). I appreciate the participation. Although sometimes it slows me down I really would rather answer questions than just bore you with a lecture with no interaction. Keep it up. We will move at the appropriate pace.