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EC140 Study Guide - Final Guide: Diminishing Returns, Output Gap, Gdp Deflator

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Ken Jackson
Study Guide

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EC140 Final Exam Study
Chapter 19:
Macroeconomics: the study of aggregated economic outcomes such as inflation, unemployment or
economic growth
-nominal national income vs real national income (adjusted for inflation)
-output gap: difference b/w actual and potential output
-nominal int. rate: rate paid to borrow money
-real interest = nominal int rate inflation rate
-exchange rate: amount of domestic currency needed to purchase a unit of foreign currency
Chapter 20:
-total value added = value of all final goods produced
-GDP = total production in a country (goods/services)
-nominal GDP: current amount x current prices
-real GDP: current amount x base prices
-GDP deflator = nominal GDP/real GDP
-CPI: (case consumption x base price)/(base consumption x current price)
-always 100 in base year
-measuring value added:
-avoids double counting
-value added (expenditure side) = sales revenue cost of intermediate goods
-value added (income side) = wages paid to workers + profits paid to owners
-production = expenditure = income
Y = C + I + G + NX
-C is induced exp
-I, G, NX are autonomous exp
GNP: income received by Canadians; related to product in Canada or elsewhere
Disposable personal income = GNP taxes depr. ret. Earnings int + transfer payments to houses
-illegal atiities, ifoal eoo, hoe podutio, eooi ads ot iluded i GDP
-liig stadads do’t auatel eflet fatos that people ight alue eg. life expect, education etc
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Types of unemployment:
1. Frictional normal turnover from people changing jobs
2. Structural mismatch of skills/location
3. Cyclical unempl. associated w/ difference b/w actual and potential GDP (trends in business
cycle eg. cyclical unempl. low during peaks)
4. Full employment cyclical unempl. equals 0, still frictional
Chapter 21:
AE = C + I + G + NX
-savings = disposable income consumption
Consumption = autonomous + induced consumption*income
(C = a + b*YD)
-autonomous consumption: even if income was zero, consumers would still have consumption
-induced consumption: incr income, incr consumption; MPC
APC = C/YD decreases as income increases
MPC = ∆C/∆YD is constant; equals b hages i MPC, otate f’
-shifted by change in household wealth, int rates (decr int, incr cons), expectations about future
Consumption function:
-as disposable income
increase, both C and S
Savings function:
Savings = -a + (1 b)*YD
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-investments in plant and equipment, residential construction, inventories
-AE = (a + I0) + b*ID
-AE > Y, inventories fallincrease outputincr in Y
-AE < Y, inventories risereduce outputdecr Y
Simple multiplier = 1/(1 z)
-if A increase, Y increases by the multiplier
-if companies are optimistic, I and C increase which increase Y
Chapter 22:
-govt functions: spend $ (G), collect $ (net tax revenues = tax collected transfer payments; T = tY)
T G > 0, surplus
T G < 0, deficit
-exports, X, autonomous
-imports, determined by CDN spending decisions; incr income, incr imports
NX = X mY
X (black, autonomous)
IM (increase w/ Y)
Increase Ydecr NX
-incr. foreign Y, shift X up
-incr CDN priceappreciate CAD, decr X, incr IM (rotate up)
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