Department

Economics for Management StudiesCourse Code

MGEA06H3Professor

Iris AuStudy Guide

FinalThis

**preview**shows half of the first page. to view the full**2 pages of the document.**SOME IMPORTANT EQUATIONS

x Labour force = number of employed + number of unemployed

x Unemployment rate = number of unemployed ÷ labour force × 100%

x Employment rate = number of employed ÷ adult population × 100%

x Labour-force participation rate = labour force ÷ adult population × 100%

x Using the Period-1 Bundle (hold quantity fixed to period 1) to Calculate the % Change in Price

o Cost of Period-1 Bundle in Period 1 = P1 • B1 = Price from period 1 • Quantity from period 1

o Cost of Period-1 Bundle in Period 2 = P2 • B1 = Price from period 2 • Quantity from period 1

o Prices Risen = (Period-1 Bundle in Period 2 – Period-1 Bundle in Period 1) ÷ Period-1 Bundle in Period 1 × 100%

x Using the Period-2 Bundle (hold quantity fixed to period 2) to Calculate the % Change in Price

o Cost of Period-2 Bundle in Period 1 = P1 • B2 = Price from period 1 • Quantity from period 2

o Cost of Period-2 Bundle in Period 2 = P2 • B2 = Price from period 2 • Quantity from period 2

o Prices Risen = (Period-2 Bundle in Period 2 – Period-2 Bundle in Period 1) ÷ Period-2 Bundle in Period 1 × 100%

x Using CPI to Calculate the % Change in Price

o Cost of Base-Year Bundle in Period 1 = P1 • B1 = Price from period 1 • Quantity from period 1

o Cost of Base-Year Bundle in Period 2 = P2 • B1 = Price from period 2 • Quantity from period 1

o CPI: CPI1 = (P1 • B1) ÷ (P1 • B1) × 100%

CPI2 = (P2 • B1) ÷ (P1 • B1) × 100%

o % Change in Prices = (CPI2 – CPI1) ÷ CPI1 × 100%

x Using GDP Deflator to Calculate the % Change in Price

o Cost of Current-Year Bundle in Period 1 = P1 • B2 = Price from period 1 • Quantity from period 2

o Cost of Current-Year Bundle in Period 2 = P2 • B2 = Price from period 2 • Quantity from period 2

o GDP Deflator: GDPD1 = (P1 • B2) ÷ (P1 • B2) × 100%

GDPD2 = (P2 • B2) ÷ (P1 • B2) × 100%

o % Change in Prices = (GDPD2 – GDPD1) ÷ GDPD1 × 100%

x Rule of 72: 72 / x% = number of years needed for a number to double

x GDP from the expenditure approach = C + I + G + NX

x Income = factor incomes + non-factor payments

x Value added = output of every firm in Canada – intermediates purchased by firm

x Net National Product (NNP) = Gross National Product – Depreciation = GNP – CCA

x GNP = GDP + Net factor income earned abroad (NFIEA)

x NFIEA = Factor income earned by Canadians outside Canada – Factor income earned by non-Canadians in Canada

x Nominal GDPt = Pt • Bt

x Real GDPt = PBase-year • Bt

x Real GDP should equal Nominal GDP in the base year

x To get GDP in year B into year A prices:

x Supply = actual expenditure = actual national income = GDE = C + I + G + X – IM

x Demand (AD) = desired expenditure = AD = C + I + G + X – IM except unexpected changes in inventories

x The key is investment (I) in GDE includes unintended change in inventories while I in AD includes only intended investment.

x The underlying model is given by:

AE = AE0 + cYY

where AE = aggregate expenditure = aggregate demand

AE0 = autonomous expenditure = constant

c

Y = d AE / d Y = constant, 0 < cY < 1

Y = GDP = output = income

x A single consumption function:

C = C (DI), where DI = disposable income = Y – T + TR

C = C0 + C1DI, where C0 = autonomous consumption

C1 = marginal propensity to consumer out of DI = MPC

x A simple investment function:

I = I (r), where r = real interest rate

I = I0 – dr, where I0 = autonomous investment

d = ûI / ûr = constant

x National saving (NS) = Y – C – G

x Private savings (SP) = DI – C = Y – T + TR – C

x Public savings (SG) = T – TR – G

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