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Flashcards in Macro Midterm Deck (47):
1

Aggregate Output:

everything that is produced within a country

2

Potential Output

Y* amount of goods/services an economy could produce (assumes everyone who wants to work is working 40 hour weeks and full use of capital)

3

Y*

potential output

4

Y

actual output

5

recessionary gap

Y* > Y

6

Inflationary gap

Y > Y*

7

employement

anyone over the age of 15 who has a job

8

Cyclical unemployment:

caused by recession/business cycle

9

Frictional unemployment

moving between jobs

10

Structural unemployment

mismatch of skills

11

labor force

number of people employed + unemployed

12

Unemployed people

Does not include: discouraged (given up) workers, students, retired people

13

Employment rate

# people employed / labor force * 100

14

Labour participation rate

labour force / adult population

15

Calculating GDP

value added (avoids double counting), expenditure (formula) income approach

16

Income approach

wages + profits + interest payments + indirect taxes - subsidies + depreciation

17

CPI negatives

OVERSTATES inflation
Does not measure quality change, introduction of new goods, or substitution effect

18

Formula for percentage change

new - old / old * 100

19

CPI Steps

Calculate consumption in each year (using base year quantities)
Calculate CPI in each year = total cost (year) / total cost (base year) * 100
Inflation = CPI (year 2) - CPI (year 1) / CPI (year 1) * 100

20

GDP approach inflation

1. Calculate nominal GDP in each year (price * quantity) and add
2. Calculate real GDP for each year (keep price constant and change quantity)
3. GDP deflator for each year = nominal GDP / real GDP * 100
Inflation = new deflator - old deflator / old deflator * 100

21

C formula

C = a + bYd

22

MPS

Z - slope of AE function

23

AE = A + zY

A is autonomous expenditure, Z is MPS or induced expenditure

24

Nx

X0 - mY

25

Simple multiplier

1 / 1-Z (steepter = bigger Z = bigger multiplier)

26

How to calc changes?

△ Y = △ in A * simple multiplier (1 / 1-Z)

27

Fisher effect

i = r + pie^e

28

Shifts in AE

change in a, I, G, X

29

Change in AE Slope

change in MPC, tax, MPI

30

Change in Price level

shifts AE up (if decrease in PL), move along AD

31

Large Z

Steep AE = flat AD curve, large shifts (unstable)

32

Small Z

Flat AE = steep AD, small shifts (stable)

33

Multiplier

distance between new and old equalibrium (= A * mult (change in Y / change A)

34

Simple mult

distance between AD curves after shift (constant PL) = change A/1-z

35

Automatic Stablizers

increase tax, decrease MPC, increase MPI (they make Z smaller)

36

Supply Shocks

NEG = left, pos = right - tech, factors of production

37

Negative Demand Shocks

left shift - downward pressure on wages (slow due to sticky wages)

38

Demand shock causes

change in I (interest rates), G or tax (fiscal policy) or exports

39

Positive demand shock

right - upward pressure on wages, they rise until equalbrium

40

Automatic (economy on its own)

AS shifts wages until equalibrium

41

Policy changes

Shift AD curve to equalbirum - not exact or long tern

42

National savings

Y - C - G

43

Private savings

Y - T - C

44

Public Savings

T - G

45

Neoclassical Growth theory

diminishing marginal returns (keep 1 constant), constant returns to scale (change both, output should change the same amount)

46

If population increases

GDP increases, living standards decrease

47

Constant returns mean

no change in living standards, increase in GDP