ECN 204 Study Guide - Midterm Guide: Autarky, Production Function, Real Interest Rate
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Wednesday February 29th, 2012
Midterm Exam Formula Sheet
-The Components of GDP:
-GDP is total spending
Government Purchases (G)
Net Exports (NX)
-These components add up to GDP (denoted Y)
-Y = C + I + G + NX
The GDP Deflator:
-the GDP deflator is a measure of the overall level of prices
GDP deflator = 100 x nominal GDP / real GDP
How the CPI Is Calculated:
1. Determine the “basket.”
Statistics Canada surveys consumers to determine what’s in the typical consumer’s “shopping
2. Find the prices.
Statistics Canada collects data on the prices of all the goods in the basket
3. Compute the basket’s cost.
Use the data on prices to compute the total cost of the basket
4. Choose a base year and compute the index.
The CPI in any year equals
100 x cost of basket in current year / cost of basket in base year
5. Compute the inflation rate.
The percentage change in the CPI from the preceding period.
Inflation Rate = CPI this year – CPI last year / CPI last year x 100%
Correcting Variables for Inflation: Comparing Dollar Figures from Different Times
Amount in today’s dollars = Amount in year T dollars x Price level today / Price level in year T
Correcting Variables for Inflation: Real vs. Nominal Interest Rates
-Real interest rate = (nominal interest rate) – (inflation rate)
The Production Function:
-The production function is a graph or equation showing the relation between output and inputs:
Y = A F(L, K, H, N)
F( ) – a function that shows how inputs are combined to produce output
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