FNCE 101 Study Guide - Spring 2018, Comprehensive Midterm Notes - Gross Domestic Product, Amplitude Modulation, Inflation
FNCE 101
MIDTERM EXAM
STUDY GUIDE
Fall 2018
The deviation of real GDP from its potential level has long been
regarded as a standard measure of economic slack
When the economy grows faster than its potential, the effects
are widespread: Overtime hours increase for workers, capital
utilization rates go up for businesses, and inflation pressures
mount for consumers.
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Output gap- diff btwn real GDP and its potential level
Closely scrutinized by policy makers
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Data on real GDP come from the National Income and Product
Accounts (NIPA) published by the Bureau of Economic Analisys
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Data on potential GDP are revised less frequently
Potential GDP had moved slowly enough that the CBO
releases yearly updates together w 10 yr projections
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Potential GDP can change in times of economic tumult]
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We measure inflation using the personal consumption expenditures
price index (PCEPI) excluding food and energy. This measure is
commonly referred to as core PCE inflation.
Although the Federal Reserve is ultimately interested in
ensuring that headline inflation remains stable, core inflation is
significantly less volatile and therefore offers a more reliable
measure
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CLASS NOTES
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Audio recording started: 10:34 AM Wednesday, March 28, 2018
What should Jerome Powell do?
Monday, March 26, 2018
6:32 PM
find more resources at oneclass.com
find more resources at oneclass.com
Audio recording started: 10:34 AM Wednesday, March 28, 2018
Audio 3
Audio recording started: 10:35 AM Wednesday, March 28, 2018
Taylor Rule
We need a measure of econ slacks and a measure of inflation
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Slide 2
First measure of slack
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Output gap
When econ grows faster than potential it becomes hard
for firms to meet demand and they have an incentive to
increase prices leading to further inflation
Overtime hrs increase
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Capital util rates increase
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Inflation pressures mount for consumers
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Increase in AD --> increase output gap --> increase
in inflation
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Slide 3
Bookmark added at 02:03 in Audio 3
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GDP recorded quarterly
Comes roughly a month after quarter ends
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Not reported frequently
In past revisions didn’t really matter
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Although we were revising every 3 yrs big
recessions/expansions didn’t change shape of economy
or output trajectory
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However great recession changed everything/ output
trajectory
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What impact do these revisions have on output gap?
GDP has been revised downward since 2007
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Dotted line: real GDP
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find more resources at oneclass.com
find more resources at oneclass.com
