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STUDY GUIDE: MACROECONOMICS

STUDY GUIDE: MACROECONOMICS. ECON FORUMLA & GRAPH SHIFTS For Each Chapter Covered in ECON 2105. OPPORTUNITY COST – Chapter 3. Opportunity Cost Is a Ratio O.C. cell phone = # DVD lost # Cell phone gained O.C. DVD = # cell phones lost # DVDs gained

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STUDY GUIDE: MACROECONOMICS

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  1. STUDY GUIDE: MACROECONOMICS ECON FORUMLA & GRAPH SHIFTS For Each Chapter Covered in ECON 2105

  2. OPPORTUNITY COST – Chapter 3 • Opportunity Cost Is a Ratio • O.C. cell phone = # DVD lost • # Cell phone gained • O.C. DVD = # cell phones lost • # DVDs gained • When the opportunity cost of a cell phone is x DVDs, the opportunity cost of a DVD is 1/xcell phones. • INCREASING OPPORTUNITY COSTS • ARE EVERYWHERE

  3. Chapter 4: S/D of Goods and Services • Supply (Firms) • $price of good/service (graphed) = $ qty S • #price of substitute in production = $ S • $price of complement in production = $ S • #resource price or other input price = $ S • Future Prices expected to # = $ S • $number of sellers = $ S • $productivity = $ S Tire Market S2 P S1 D Q Demand (Households) $price of good/service (graphed) = $ qty D $price of substitute in consumption = $ D #price of complement in consumption = $ D Income # (inferior good) = $ D Income $ (normal good) = $ D Future Prices expected to $ = $ D Future Income expected to $ = $ D $number of buyers = $ D r in preferences = $ D (item A) and # D (item B) Haircut Market S P D1 D2 Q

  4. Expenditure Approach: GDP = C + I + G + NX (Consumption, Investment, Government, Net Exports) FORMULAS-Chapter 21 (Chapter 5) Net Exports = Exports - Imports Savings = Y – C - NT Income Approach: GDP = W + I + R + P + Indirect taxes – Subsidies + Depreciation GDP = Net domestic product at factor cost+ Indirect taxes – Subsidies + Depreciation Net Domestic Product at Factor Cost = Wages + Interest + Rent + Profit Total Income: Y = C + S + NT (Consumption + Savings + Net Taxes) RGDP per Person = RGDP / Population Income = Expenditure

  5. difference between two variables Current # - original/base # Labor force Labor force participation rate = % Change = % Change = x 100 x 100 x 100 Number of people unemployed Working-age population Original variable original/base # Unemploymentrate = x 100 Labor force FORMULAS-Chapter 22 (Chapter 6)

  6. Cost of CPI basket at current period prices x 100 Cost of CPI basket at base period prices Nominal wage rate in 2006 x 100 Real wage rate in 2006 = CPI in current year  CPI in previous year CPI in 2006 x 100 Inflation rate = CPI in previous year CPI in 2007 Price of stamp in 1907 dollars x CPI in 1907 FORMULAS-Chapter 23 (Chapter 7) CPI = GDP deflator = (Nominal GDP  Real GDP)  100. • Real interest rate = Nominal interest rate – Inflation rate. Price of stamp in 2007 dollars =

  7. Nominal Wage Rate RWR = Price Level FORMULAS-Chapter 24 (Chapter 8); Labor Supply/Demand Labor Market • CURVE SHIFTS: • Labor Supply (Households) • $ qty LS = $Wages (on y axis) • $ LS = #income taxes • $ LS = #unemployment benefits • $ LS = $population • Labor Demand (Firms) • $ qty LD = #Wages (on y axis) • LD = $Productivity • Technology • Human Capital LS2 RWR LS1 LD Labor LS RWR LD1 LD2 Labor

  8. Growth rate of population Growth of real GDP per person Growth rate of real GDP – = Growth of real GDP = per Person Real GDP per Person in current year Population in current year – Population in previous year Real GDP per Person in previous year Real GDP in current year Real GDP in previous year Growth of real GDP = Growth of Population = – – Real GDP Labor Productivity = Years to Double = 70 x 100 x 100 x 100 Aggregate hours Real GDP in previous year Real GDP in previous year Annual % Growth Rate Real GDP in previous year FORMULAS- Chapter 25 (Chapter 9) Real GDP = quantity of labor (aggregate hours) x Labor productivity

  9. FORMULAS-Chapter 26 (Chapter 10); Loanable Funds Market Loanable Funds Market • SLF • RIR = hQty LF supplied • Disp. Inc. = h savings = h SLF • i Wealth = h savings = h SLF • i Exp.Fut.Inc. = h savings = h SLF SLF1 RIR SLF2 DLF LF • DLF • RIR = iQty DLF • Exp. Profit = h amt. invested = h DLF • hPopulation = h DLF • Bus. Cycle Expansion = h DLF • Technology, successful new products = h DLF • Optimism = h Investment // Pessimism = i Investment

  10. NI = GI - Depreciation FORMULAS-Chapter 26 (Chapter 10); Loanable Funds Market • Asset Price h = Interest Rate i SLF = PSLF + GSLF CH10: Loanable Funds Market Govt deficit ADDS to Private demand for loans = # RIR # Qty of private funds supplied # Qty of loanable funds $ Investment Govt surplus ADDS to Private savings = $ RIR $ Qty of private savings # Qty of loanable funds # Investment Govt Deficit Govt Surplus PSLF SLF RIR RIR SLF DLF DLF PDLF LF LF

  11. M1 = Currency + checkable deposits + travelers checks FORMULAS- Chapter 27 (Chapter 11) M2 = M1 + savings, time, & other deposits, money mktfunds Not Money: $ inside banks, reg & e-checks, credit/debit cards Money multiplier: [C=Currency Drain / R=Desired Reserve] 1 + C R + C

  12. NIR=RIR + inflation rate FORMULAS- Chapter 28 (Chapter 12) Inflation Rate = $ growth + Velocity growth – RGDP growth Money Market Velocity = (PL x RGDP) / qty of money MS MS2 NIR PL = GDP deflator / 100 • MD • #NIR = $qty MD • #PL = #MD • #RGDP = #MD • r Financial Technology =r Money Demand • #ATMs = #MD • #Credit Cards = $MD MD1 QM LONG RUN: Fed makes Open Mkt purchase #Qty $$ NIR $ RIR  #borrowing/investing (spending habits change)  change in production and prices Thus, Shortrun NIR adjusts, Longrun PL adjusts Shortrun#MS = $IR // Long run  #PL and NIR returns MS #RRR = $ MS #Disc rate = $ MS Selling Securities = $ MS $ MS = banks make smaller or less loans $ MS = people deposit less money #V = #inflation rate

  13. Inflation Rate = $ growth + Velocity growth – RGDP growth FORMULAS- Chapter 29 (Chapter 13) Velocity = (PL x RGDP) / qty of money LONG RUN: #price level  #MD  #NIR  #RIR  $spending  $qty RGDP demanded  $AD #price level  $RWR PL = GDP deflator / 100 Aggregate Market • AS • #PL = #qty S RGDP b/c of $RWR • #Pot. GDP =# AS • $MWR =# AS • $Money price of other resource =# AS AS1 PL AS2 AD RGDP #exchange rate (from 100yen to 125 yen for $1) = cheaper foreign goods (12,500yen goes from $125 to $100) = #imports (we buy more of their goods) = $AD (and less of ours) AD #PL = $qty D RGDP and $AD #Exp. Future income, inflation, profits = # AD (expectations) $taxes = # AD (fiscal policy) #Transfer pmts/Govt. Expenditure = # AD (fiscal policy) #qty money = # AD (monetary policy) $Interest rate = # AD (monetary policy) #Foreign Income = # AD (world economy) #Global economy (expands) = # AD (world economy) $Exchange rate = # AD (world economy)

  14. Various Graphs AS NIR MS PL RGDP Good x PF PPF MD AD Good y MC LS RWR QM RGDP MB LD Labor Loanable Funds Goods & Services Labor P S LS RIR RWR SLF Surplus Market effecting Price Floor shortage, Market effecting Price Ceiling D LD DLF Q Labor LF Deficit Surplus PSLF SLF RIR RIR SLF DLF DLF PDLF LF LF

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