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MBA > Macro > Flashcards

Macro Flashcards

1
Q

GDP: Components of Aggregate Demand

A
  • consumption of consumer goods and services
  • investment in capital goods and real estate
  • government purchases of goods and services
  • net exports (net demand of domestic goods by foreigners)
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2
Q

Labor Market: Unemployment, types

A

Jobless but looking for a job

  • Frictional: result of free labor market and allocation of labor to jobs (“matching”) –> healthy
  • Structural: result of a mismatch of skills in an economy (e.g. shift from manufacturing to service economy)
  • Cyclical: loss of jobs in recession when firms cannot afford to hire enough employees
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3
Q

Labor Market: unemployment rate

A

# unemployed

Labor Force

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4
Q

Labor Market: Labor Force

A

Employed + # Unemployed

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5
Q

Labor Market: Participation Rate

A

Measure of the active portion of an economy’s labor force:

_ Labor Force _

Total Population over 16yTrend

Trend 1970 - 2010

  • men: 80% –> 70% (result of aging population)
  • women: 40% –> 60% –> 55% (recession)
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6
Q

Labor Market: Categories

A
  • employed
  • unemployed
  • retired
  • full-time student
  • disabled
  • other (detached from labor force)
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7
Q

Macro Data: GDP (Y) Definition

A

GDP is a measure of output, i.e. market production

  • market value
  • of all final goods and services newly produced
  • on domestic soil
  • during a period of time
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8
Q

Labor Market: Problems of Unemployment

A

1) Depreciation of human capital (lose skills)
2) Productive externalities: waste resources
3) Social externalities: increase in crime, divorce, etc.
4) Individual self-worth: lower marginal utility of leisure

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9
Q

GDP: Measuring GDP in Practice

A

1) P_roduction method_ (supply): sample firms and gather “value added” (sales - cost of raw material)
2) Expenditure method (demand): Y = C + I + G + NX
3) Income method: Labor income + capital income

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10
Q

GDP: Expenditure components

A

1) Consumption (C): sum of durables, non-durables and services purchased domestically by individual consumers (excluding new housing)
2) Investments (I): sum of durables, non-durables and services purchased domestically by businesses

Does NOT include real estate / stock transactions –> not produced!

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11
Q

GDP: Government spending

A

Spending on goods and services

(Does not include wealth transfers (welfare spending)

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12
Q

GDP: Supply Side components

A

Production = f(A, N, K, other inputs)

A: technology

N: labor input - demand/supply

K: capital input - past investments

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13
Q

Prices: Types of prices

A

P = price of output (cf. CPI)

W = realwage, price of labor

r = real interest rate, price of money

$, e = price of foreign currency, FX market

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14
Q

Markets that determine the level of GDP (Y) and all aspects of the macroeconomy

A

1) Labor market: demand / supply
2) IS-LM market: loan demand / supply
3) Aggregate Demand vs. Aggregate Supply
4) FX market

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15
Q

Markets: Labor Market (1/4)

A

Labor market:

  • determined by demand / supply
  • determines N, W
  • determines production/supply side
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16
Q

Markets: IS-LM market (2/4)

A

IS-LM market:

  • determined by loan demand / supply
  • determines r, I
  • key to central bank policy
17
Q

Markets: Aggregate Demand vs Aggregate Supply(3/4)

A

Aggregate Demand vs. Aggregate Supply

  • determines P, Y
  • key to understand inflation
18
Q

Markets: FX market (4/4)

A

FX market

  • determines $, e (value of currency)
  • key to linking international markets
19
Q

GDP: Savings - Personal Savings Rate

A

Savings Rate =

<em>S(hh) </em>* / *<em>Y(d) </em>

  • Household Savings S(hh) = Y - T + Tr - C
  • Disposable Income Y(d) = Y - T + Tr

(T: Taxes, Tr: Welfare Transfers)

Trend: 1970 - 2010: 15% –> 2.5%

20
Q

Savings: Government (Public) Savings, Deficit

A

Sgovt = T - (G + Tr)

Negative Sgovt = deficit

21
Q

Savings: Total Savings

A

Total Savings in the Economy

S = Sgovt + SHH

S = Y - C - G

S = I + NX

22
Q

Price and Inflation: Importance to measure prices

A
  • price is a key metric to measure production (Y)
  • Changes in price (inflation, deflation) are important to track real growth rates
23
Q

Price and Inflation: Price Index, Technological Bias of CPI

A

Consumer Price Index

  • representative basket of goods –> measure inflation
  • technological bias: quality improvements, new product inventions distort the CPI –> 1% of inflation
24
Q

Price and Inflation: Real and Nominal Values given CPI

A

Real Value of 1995 GDP in 1982 $

= Nominal 95$ * CPI (82$/95$)

25
Q

Price and Inflation: Real Growth GDP I

A

1) Determine Real Y(t+1) and Real Y(t) in same year$
2) Calculate Growth Rate

= Real Y (t+1) - Real Y (t)

Real Y (t)

26
Q

Price and Inflation: Real Growth GDP II

A
27
Q

Price: Yield Curve

definition and insights

A
  1. Definition: relationship between interest rates (yields) on securities of differing maturities
  2. Insights: infer the market’s expectation of future economic conditions
  • flat curve: low aggregate demand, recession
  • upward sloping: boom, growth, high aggregate demand (accelerating π or r)
28
Q

Nominal Yield / Interest Rate

A

i = r + πe + p

  • i = nominal interest rate
  • r = real interest rate on security
  • πe = expected inflation
  • p = risk premium (in macro = 0)
29
Q

Yield Curve: causes for shift

A

Change (increase, decrease) in

  • current and future r
  • current and future πe
30
Q

Yield Curve:

what causes the yield curve to slope upwards or downwards?

A

Change in

  • future (not current) r –> expected future recession
  • future (not current ) πe–> expected acceleration or falling inflation rates
31
Q

Inflation

Why do we care about inflation?

A

Costs of Inflation

  • Variability:
    • higher inflation correlates with higher variability for both borrower and lender
    • both require risk premium
    • no contract possible, ineffective economy
  • Indexing Costs:
    • contracts are indexed
    • cash flows less stable!
  • Menu Costs:
    • costs of re-pricing goods
    • price loses signaling function
  • Shoe-Leather Costs:
    • unattractive to hold cash
    • increased transaction costs of borrowing

MBA (4 decks)

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