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# STUDY GUIDE: MACROECONOMICS PowerPoint PPT Presentation

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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## 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

• 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

### 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

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

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)

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 =

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

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

### 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

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

\$ RIR

\$ Qty of private savings

# Qty of loanable funds

# Investment

Govt Deficit

Govt Surplus

PSLF

SLF

RIR

RIR

SLF

DLF

DLF

PDLF

LF

LF

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

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

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

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

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)

#PL = \$qty D RGDP and \$AD

#Exp. Future income, inflation, profits= # AD (expectations)

#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)

Various Graphs

AS

NIR

MS

PL

RGDP

Good x

PF

PPF

MD

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