Final Flashcards
Aggregate Expenditures
The sum of all the expenditures undertaken in the economy by the factors during a specific time period
Aggregate Income
Paid income to the owners of the factors of production
% Change Formula
(Current - Previous)/Previous * 100
Nominal
At current prices
Real
Adjusted for inflation
Nominal GDP
Σ(Pcur * Qcur)
Real GDP
Σ(Pbase * Qcur)
GDP Deflator
NGDP/RGDP * 100
g(annual)
(1+gqtr)^4-1
CPI
Cost Basket Cur/Cost Basket Base
Problems with CPI
Substitution Bias
New Goods
Quality Changes
Calculating new price
$OldYear (CPInew / CPIold)
Unemployment Rate
U/LF
Labor Force Participation Rate
LF/Adult Pop
Why is there unemployment
- Business Cycle
- Min Wage
- Unions
- Efficiency Wages
- Increase in technology
- Job Search
y
Y/L or AK^α
k
K/L
i (Realized Investment)
i=sy
Δk
Δk = sy - (n + d)k
Required Investment
(n + d)k
Golden rule of capital
maximize consumption (Afk - (n+d)/k)
MPK
n+d
Function of Money
Store of Value
Medium of Exchange
Unit of account
S
(Y-T-C) + (T-G)
M^s (money supply)
Currency + Demand Deposits
C+D
Monetary Base MB
C+R
m (money multiplier)
1/rr
D
mR
Open Market Purchase
MB up MS up
Open Market Sale
MB Down MS Down
Raise reserve requirement
MB unchanged MS down
Lower reserve requirement
MB unchanged MS up
Raise Discount Rate
MB up MS up
Lower Discount Rate
MB Down MS Down
Problems with controlling money supply
Can’t control how much people deposite
Can’t control how much people lend
V
V=PY/M
Quantity theory of money
MV=PY
M= Money Supply
V= Velocity of Money
P=Price Level
Y=GDP
μ (percent change in money supply)
pi + g
Fisher effect
tendency for nominal interest rates to change to follow the inflation rate. r = i - pi
