ECON 102- Final Exam Guide - Comprehensive Notes for the exam ( 83 pages long!)

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28 Mar 2018
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UBC
ECON 102
Final EXAM
STUDY GUIDE
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Macroeconomics: the study of the determination of economic aggregates, such as
total output, total employment, the price level, and the rate of economic growth.
National income: both the value of total output and the value of income claims
generated by the production of that output
Nominal national income (current-dollar national income): total national
income measured in current dollars
Real national income (Constant-dollar national income): national income
measured in constant (based- period) dollars. It changes only when quantities
change
Recession: a fall in the level of real GDP. Often defined precisely as two consecutive
quarters in which real GDP falls
Business cycle: fluctuations of national income around its trend value that follow a
more or less wavelike pattern.
Potential output (potential GDP) (Y*) : The real GDP that the economy would
produce if its productive resources were fully employed
Output gap: actual output minus potential output, Y- Y*
Recessionary gap: a situation in which actual output is less than potential output, Y
< Y*
Inflationary gap: a situation in which actual output exceeds potential output,
Y > Y*
Labour productivity: the level of real GDP divided by the level of employment
Price level (P): the average level of all prices in the economy, expressed as an index
number
Inflation: a rise in the average level of all prices
Consumer Price index (CPI): an index of the average prices of goods and services
commonly bought by households
Purchasing power of money: the amount of goods and services that can be
purchased with a unit of money
Interest rate: the price paid per dollar borrowed per period of time, expressed
either as a proportion or as a percentage
Nominal interest rate: the price paid per dollar borrowed per period of time
Real interest rate: the nominal rate of interest adjusted for the change in the
purchasing power of money. Equal to the nominal interest rate minus the rate of
inflation
Foreign exchange: foreign currencies that are traded on the foreign exchange
market
Foreign exchange market: the market in which different national currencies are
traded
Depreciation: a rise in the exchange rate it takes more units of domestic currency
to purchase one unit of foreign currency
Appreciation: a fall in the exchange rate it takes fewer units of domestic currency
to purchase one unit of foreign currency
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When aggregate output rises, the output of many commodities and the
incomes of many people rise with it
Two difference aspects of the economy:
o short run behaviours of macroeconomic variables (output,
employment, and inflation) and about how government policy can
influence these variables business cycles
o long run behavior, especially the long run path of aggregate output
economic growth; how investment and technological change affect
our material living standards over long periods of time
microeconomic foundations: build models of the economy that are populated
by workers, consumers, and firms
optimizers: individuals are assumed to maximize their utility and firms are
assumed to maximize their profits
First group of researchers:
o aggregate the choices of the agents to arrive at the model’s values for
aggregate employment, consumption, output and so on
o assume that wages and prices are perfectly flexible and thus adjust
quickly to clear their respective markets
Second group of researchers:
o analyze the behaviour of individuals and firms, construct their model
by using aggregated relationships for consumption, investment, and
employment
o assume that long term employment contracts, or costs associated with
changing prices, wages and prcies are slow to adjust = markets in
disequilibrium for long time
19.1 Key Macroeconomic Variables
For the nation as a whole, all of the economic value that is produced
ultimately belongs to someone in the form of an income claim on that
value
If a firm produces $100 worth of ice cream, that $100 becomes
income for the firm’s workers, the firm’s suppliers of material
inputs, and the firms owners
The value of a national product = value of the national income
To measure national income, we add up the values of the many
different goods and services produced
A change in nominal national income can be caused by a change in
either the physical quantities or the prices on which it is based
Changes in national income from one year to another reflect only
changes in quantities
One of the most commonly used measures of national income is called
gross domestic product (GDP)
Long term economic growth: the major movement is a positive trend
that increased real output by approximately four times
Short term fluctuations: overall growth dominates the real GDP series
that the fluctuations are hardly visible
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Document Summary

Macroeconomics: the study of the determination of economic aggregates, such as total output, total employment, the price level, and the rate of economic growth. National income: both the value of total output and the value of income claims generated by the production of that output. Nominal national income (current-dollar national income): total national income measured in current dollars. Real national income (constant-dollar national income): national income measured in constant (based- period) dollars. Recession: a fall in the level of real gdp. Often defined precisely as two consecutive quarters in which real gdp falls. Business cycle: fluctuations of national income around its trend value that follow a more or less wavelike pattern. Potential output (potential gdp) (y*) : the real gdp that the economy would produce if its productive resources were fully employed. Output gap: actual output minus potential output, y- y* Recessionary gap: a situation in which actual output is less than potential output, y.

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