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Lecture 9
Macroeconomics Chapter 10-11
Chapter 10
Stock Market and
Personal Finance
2,400
$21 trillion
3,800
$11 trillion
Indexes
DJIA
S&P 500
NASDAQ
Investment
GDP:
purchases of new capital
Stocks and Bonds
Firm
An organization that
organizes capitals
Types of Firms
Proprietorships
Partnerships
Corporations
Issues
Complexity
Liability
Taxes
Raising Money
Control
Proprietorship
one owner
easy to create
one tax
unlimited liability
hard to raise money
ends with death
Partnership
two or more owners
easy to create
combine talents
all are liable
disagreements
ends with death
Corporation
one to many owners
limited liability
raise financial capital
does not die with shareholders
harder to create
more regulation
double taxation
Number Revenues
Proprietorships 70% 4%
Partnerships 10% 16%
Corporations 20% 80%
Dividends
portion of profits paid to
shareholders
Raising Money
Retained Earnings
Sell Ownership Shares
Borrow
Financial Statements
Income Statement
Balance Sheet
Income Statement
Revenue
- Expenses
= Net Income
What happened between two dates?
Balance Sheet
What I own
What is the status on a specific date?
What I owe
What I am worth
=
Assets
Liabilities
Net Worth
Must balance
Valuation
Stock Price x Number of Shares
$50 a share
1,000,000 shares
$50,000,000 value
Valuation
Share Price: $186
Share Outstanding: 5.165 billion
Value ?
$916 billion
wolframalpha.com
Accounting Profit
Explicit Costs
Explicit + Implicit Costs
Economic Profit
Finance
Time
Risk
Finance
Time - t or n
Risk - r or i
Foundation Finance
Formula
(1 + r )
n
r = risk rate
n = time periods
FutureValue?
Future Value = Amount Today x Factor
Factor is the Growth Formula
(1 + r )
n
r = rate
n = time periods
FutureValue?
(1 + r )
n
r = 10% or 0.10
n = 5 years
(1 + 0.10)5
(1.10)5
1.61
FutureValue?
Future Value = Amount Today x Factor
$161 = $100 x 1.61
Future Value is compounding
Future Value is multiplying
PresentValue?
Present Value = Future Amount ÷ Factor
Present Value = $100 ÷ 1.61
$62.11 = $100 ÷ 1.61
Present Value is discounting
Present Value is dividing
Finance
Unknown - Present Value or Future Value?
Must know rate and number of periods
Compute Factor with formula
(1+r)n
If FV multiply
If PV divide
Present Future
x Factor ?
÷ Factor ?
Factor Formula = (1 + r )
n
Private information
becomes public information
when people act.
Dow Jones Industrial Average
DJIA
30 leading companies
S&P 500
Weighted by size
Better indicator
NASDAQ
3,000+ Stocks
smaller and
high tech
National Association of Securities
Dealers Automated Quotations
Dutch Tulip Mania
1635-1637
$37,500
Bubbles Pop
Chapter 11
Unemployment
Unemployment
Who measures it?
How is it measured?
Who Measures?
Department of Labor
Bureau of Labor Statistics
Two Surveys
The Current Population Survey (CPS) "household
survey" Sample of 60,000 households.
The Current Employment Statistics Survey (CES):
"payroll survey" sample of 160,000 businesses and
government agencies that represent 400,000 individual
employees.
Adults 16+
Everybody 320 100%
16+ 254 80%
Under 16 66 20%
Adult Category
16+ 254 100%
Not in
Labor Force
94 37%
In
Labor Force
160 63%
Not in Labor Force
not employed
discouraged workers
full-time student
homemaker
military
retiree
Discouraged Worker
Discouraged Worker
People who would like
to work but have given
up looking for a job

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Macro 9