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Final

ECN 204 Study Guide - Final Guide: Unemployment, Bank Reserves, Household Debt


Department
Economics
Course Code
ECN 204
Professor
Amy Peng
Study Guide
Final

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ECN 204 notes
Lecture 1: Intro to Economics
Macroeconomics examines
the whole economy
the subdivisions or aggregates
Microeconomics examines
individual units (household, firm or industry) and their decision making process
Production possibilities tables and curves
Assumptions:
a. full employment & productive efficiency
b. fixed resources
c. fixed technology
d. two goods
e. pizzas symbolize consumer goods
f. industrial robots symbolize capital goods
Optimal or best product-mix:
Law of increasing opportunity costs
Lecture 2: Measuring the Economy’s Output
Circular Flow Model
GOODS &
SERVICES
GOODS &
SERVICES
BUSINESSES
HOUSEHOLDS
RESOURCE
MARKET
PRODUCT
MARKET
INPUTS
$ COSTS
FACTORS
OF PRODUCTION
Gross domestic product, GDP
GDP : the value of final goods
Consumption expenditure (C)
Investment (Ig)
Gross investment = Net investment + depreciation

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Government expenditure (G)
Transfer payments
Exports and Imports
Net Exports Xn = X - M
Intermediate goods
a. not counted in GDP calculations
b. products purchased for resale or further processing or manufacturing
Nominal GDP & Real GDP
Nominal GDP is based on prices when output was produced
Real GDP is based on prices in some reference (base) year
Real GDP = Nominal GDP * 100
Price Index
Lecture 3: Economic Growth
Nominal GDP in current year = Prices in current year * Quantity in current year
Real GDP in current year = Prices in base year * Quantity in current year
GDP deflator in current year = Nominal GDP in current year *100
Real GDP in current year
Real GDP growth rate
Rate of growth of real GDP = Real GDP year2 - Real GDP year1 * 100%
Real GDP year1
Real GDP per capita = Real GDP in billion *1000
Population in million
GDP price index = price of market in specific year *100
price of market in base year
Level of productivity = Real Domestic Output
Input Quantity
The Inflation Rate = CPI year2 - CPI year1 *100%
CPI year1
Rule 72 or Rule 70
growth rate * years to double = 72 / 70
Lecture 4: Business Cycles, Unemployment, and Inflation
Recession (or contraction)
A period in which the economy is growing at a rate significantly below normal
Depression

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A particularly severe or protracted recession
Peak
The high point of economic activity (GDP) prior to a downturn
Trough
The low point of economic activity (GDP) prior to a recovery
Expansion
A period in which the economy is growing at a rate significantly above normal
Normally lasts longer than a recession
Boom
A particularly strong and protracted expansion
Cyclical Unemployment
Inflation follows a typical pattern in recessions and expansions.
Potential output, Potential real GDP, or Full employment output
The amount of output (real GDP) that an economy could produce when using all its
resources, such as capital and labour, at normal rates
Potential output grows over time
Capital & labor inputs increase + technology improves
Usually denoted by Y*
GDP gap = Actual GDP - Potential GDP
Output Gaps
Recessionary gap (Y < Y*)
A negative output gap - when potential output exceeds actual output
Capital & labour resources are not fully utilized
Expansionary gap (Y > Y*)
A positive output gap - when actual output is higher than potential output
Resources are being “over-utilized”
Types of unemployment
Frictional
Associated with short-term matching of workers and jobs
Structural
Long-term chronic—mismatch of skills which workers have & skills required for jobs
Seasonal
Predictable fluctuations in jobs and job search due to weather and seasons
Cyclical
“Demand – deficient” unemployment, additional unemployment brought by
recessions.
Cyclical unemployment
Cyclical unemployment: u - u*
Actual unemployment rate: u
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