ECON 362 Study Guide - Fall 2019, Comprehensive Final Exam Notes - Production Function, Labour Economics, Gross Domestic Product

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ECON 362
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ECON 362
I. Macroeconomic Phenomena and Questions (What the course is about)!
A) Economic growth and development !
1) Facts!
a)Output or Income per person across countries!
b) Output per person over time - “Great Divergence” !
2) Questions!
a) Why are some countries, rich, poor?!
b) Why are rich countries more productive now than in
1800?!
c) Can we make poor countries rich? !
B) Inflation, Deflation !
1) Facts !
a)People don’t like it (BUT when price goes up so do
wages)!
b)Varies across countries, and across time !
2) Questions !
a) What causes it? !
b)How can we control it? !
C) Business Cycles !
1)Facts: recessions and booms !
2) Questions !
a) What causes them?!
b) How can we avoid recessions?
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ECON 362
C) Price indexes!
1) Concepts !
a) Price level— Prices of individual things changing over time.
The prices going up or down. Average movement.!
-Price goes up— “Price level is Rising”— Inflation!
-Price goes down— “Price level is Falling”— Deflation!
-“Price level is Stable”!
b) Price index— Takes prices of individual goods every month or
year!
!
c) What goods & services are included?!
Answer is different depending on Price Index!
-CPI (PCE)— Consumer Price Index— Prices of goods and
services purchased by households. “Cost of living”!
-Households— Families / Individuals living by
themselves!
-Changes in CPI indicate changes in costs of living!
2) Going from levels to percent changes (inflation rates) and vice-versa!
Before we did Price Index —> Percent Change. This is opposite.!
!
b = a + (.07 • 1)
c = b - (.03 • b) Common Formula: b = a + (% • a)
Year
Price Index
% /\
1919
74
1920
70
(70-74) x 100 = -5.4%
74 DEFLATION
1921
72
(72-70) x 100 = 2.9%
70 INFLATION
Year
% /\
Price Index
1933
Pick random number, 1. [a]
1934
7%
1+(.07•1) = 1.07•1 = 1.7 [b]
1935
3%
1.7-(.03•1.7) = 1.38
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