Econ 102 Cheatsheet - Summary Intermediate Macro PDF

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NIPA: (price index) nominal investment in 2016 divided by real investment in 2016; GNP = GDP + NFP Output Approach: (value added) output – intermediate goods; income approach: net domestic product-depreciation; Temporary tax cut: weaker income effect; business saving = retained earnings; personal saving = income – consumption Income effect of an increase in the real interest rate on current consumption: positive/negative Capital outflow: CA surplus bc increase of foreign assets; private saving = business + personal Increase labor force and no change in capital stock: increase in real interest rate and increase in capital stock over time Government purchase increases in foreign economy: saving decreases in f and increases in h, increase h CA MPN = Slope of production function = w = W/P MRPN = P x MPN = labor demand curve Natural rate of unemployment = frictional + structural, full employment level; cyclical = actual – natural (Y’-Y)/Y’ = 2(uu’) Okun’s law: Y/Y=3-2u; if real GDP = nominal GDP, inflation rate cannot be determined Closed econ: Y = Cd+Id+G, Sd=Id, increase wealthC rises and S falls; real r increases: su: s increases; in: saver: s decreases. Large open econ: S  world real r ; I  world real r  e ; uc=rpK +dpK =(r+d)pK ; MPKf = uc (horizontal line); If MPKf > uc, profits rise as K is added (marginal ra-t =(1–t)i– benefits > marginal costs); taxes: MPKf =uc/(1–t)=(r+d)pK/(1–t); Kt+1 –Kt =It –dKt; It =K*–Kt +dKt; Tobin’s q = capital’s market value divided by its replacement cost: if q < 1, don’t invest Saving curve shifts right due to a rise in current output, a fall in expected future output, a fall in wealth, a fall in government purchases, a rise in taxes (unless Ricardian equivalence holds) Result of lower savings: higher r, causing crowding out of I CA = NX + NFP (net income from abroad) + NUT (net unilateral transfers); CA: adverse supply shock, G, MPKe  KFA: trade in existing assets, net flow of unilateral transfers of assets. E.g. selling assets (+); imports: (-) on CA and (+) on FA= increase in foreign assets @ home – increase in home assets abroad Balance of payment (BOP)= net increase in reserved assets; S = T - G + Y + NFP - T - C = Y + NFP - C - G Absorption = C + I + G; Net exports = Y - Absorption A current account surplus implies a capital and financial account deficit, and thus a net increase in holdings of foreign assets (a financial outflow); +CA = -KFA = net acquisition of foreign assets = net lending = NX if NUT and NFP are 0 S= I+CA= I+(NX+NFP); Sd = Id + NX; Cyclical unemployment up, o factors reduce output.

Large open economies: The world real interest rate moves to equilibrate desired international lending by one country with desired international borrowing by the other Changes in the equilibrium world real interest rate: Any factor that increases desired international lending of a country relative to desired international borrowing causes the world real interest rate to fall ; Kt = sYt – dKt Y/Y = A/A + aK( K/K)+aN( N/N); a – elasticities Economy is closed and G = 0Ct =Yt –It ; yt = Yt/Nt; ct = Ct/Nt; kt = Kt/Nt = capital-labor ratio; output function: yt = f(kt) kt = sf(kt) – (d+n)kt ; ct = (1-s)yt; eq. sf(k) = (d+n)k*; gross investment It = (n+d)Kt The Golden Rule saving rate is the rate that maximizes per-capita consumption in the steady state. Saving, population growth, and productivity growth. Exogenous technological progress: only source of long-run growth in per-capita variables. “conditional convergence” standards living acr countries; net export = foreign lending

s[f(k) − g] = (n + d)k In a large open economy, an increase in desired national saving causes the world real interest rate to decline, and an increase in desired investment causes the world real interest rate to increase

False: The higher the steady-state capital-labor ratio is, the more consumption each worker can enjoy in the long run. The slowdown happened in other countries besides the productivity remained low after oil prices decreased. An increase in domestic willingness to save: S, I, CA, r

NATIONAL saving doesn’t change: PRIVATE saving increases when PUBLIC saving decreases

United States;...