ECON 102 Study Guide - Comprehensive Midterm Guide: Real Wages, Conditional Convergence, Hyperinflation

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U of M
ECON 102
MIDTERM EXAM
STUDY GUIDE
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Lecture 6:
NIPA: National income and product accounts: measures the flows of money within an
ecooy to kow the size, copare ecooies’ perforaces to each other ad to
themselves
Think about what is moving in the opposite direction of the arrows
3 ways to calculate total economic activity:
1. Gross Domestic Product (GDP): the value of final goods ( the value of all production)
produced withi the coutry Priary defiitio of ecooy’s size
2. Aggregate expenditure: all flows into the market for goods and services within a country
3. National income: total payments to factors of production within the country: payments to
labor, capital and land)
o By definition 1 = 2
Aggregate expenditure identity: describes spending on domestically produced goods and
services
nGDP = C + I + G + NX
o measures economic value using current price
o C= consumption/ household expenditure on goods and services domestically and foreign
o I= investment/ firm expenditure on domestically and foreign produced resources
o G= government expenditure
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o NX= EX IM
Net exports = exports imports
nGDP = Aggregate Expenditure National Income
price level: the overall average level of the price system relative to some base year
o helps measure the market cost of the same good according to how it has changed over time
o measured by price index
market basket: bundle of goods measured by the price
Pt = (cost of market basket in year t/ cost of market basket in base year) x 100
Paasche Index/ GDP deflator:
o Understates the price level paid
o Ignores change in P when Q changes
Laspeyres Index/ CPI:
o Overstates the price level paid
o Ignores how change in Q when P changes
Producer Price Index: PPI: the price level, as measured using base year quantities of the
purchases of the typical firm
Cant measure exactly, especially with illegal activity and stay at home work being ignored.
Our computations just tell us the rough upper and lower bounds
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