ECON 201 Study Guide - Final Guide: Real Interest Rate, Gdp Deflator, Loanable Funds

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11 Apr 2018
Natural rate (5%) = structural (min wag) - frictional (job search, AD shock)
Unemployment rate = # employed / labor force * 100
LF participation rate = (Labor force / adult pop.) * 100
GDP deflator = (Nominal GDP / Real GDP) * 100
-Nominal = curr price * curr quantity
-Real = base price * curr quantity
-CPI = ((cost of basket in curr. yr.) / (cost of basket in base yr.)) x 100
Real interest rate = Nom. interest rate - inflation rate
Closed economy:
Private spending= Y-T-C
Government Spending= T-G
Gov saving: T-Tr+G (if negative then deficit)
Present Value:
Present value = curr. value / (1+ interest rate)num yrs
- AD: slopes down bc of wealth effect and interest rate effect
-SRAS: shifts because of input prices (wages, technology, expected change
in future price level, natural resource)
LRAS: economy at full employment, shifts bc of factors of production
Market for loanable funds
Insert graph
AE and GDP
Planned investment= actual investment - unplanned change in inventories (aka GDP- AE)
Y= 1 / (1-MPC)a or G or I or NX
Y = (-MPC) / (1-MPC)T
MPC: slope of consumption function
= Consumption / Disposable Income
Number of years to double = 70 / growth rate
Required Reserve Multiplier = 1 / rr
Consumption = a + MCP (Y-T)
Monetary and Fiscal Policy (shift AD)
Fiscal: gov spending and taxes
Monetary: money supply and interest rates
- MS  r  , I 
- Recessionary gap: G, T, MS , r . shift AD right to fix
- Inflationary gap: G, T, MS , r  shift AD left to fix
Debt vs. Deficit
Deficit: G-T-Tr this year
Debt: sum of all deficits
Okun's law: 1↓  in unemployment, 2 ↓  in GDP
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