Midterm 1 Cheat Sheet PDF

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Complete Cheat Sheet for the First Midterm of the Year....

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GDP: Total market value of all final goods and services produced in a country during a given period of time. ($19.247 trillion 2nd quarter of 2017, +3.5% annually, previous quarter growth 1.2%). Nominal GDP: (Q1*P1) + (Q2*P2)… makes no adjustments Real GDP: Is true economic growth because it adjusts for the inflation rate. Multiply Q of this year with P of Base Year. Nominal GDP x 100 (Shows increase in price level between years; base GDP Deflator: RealGDP year=100) Value2 −Value1 X 100 (Continual rise in the overall price of goods) Inflation Rate: %Δ= Value1 Y = C + I + G + NX: Consumer Goods=durable goods, nondurable goods, services ($13.3 tril); Investments=residential, business, equip./software/intel. property rights, changes to inventories ($3.17 tril); Government Spending=federal: defense, nondefense, state, local ($3.3 tril); Net Exports=Exports-Imports, answer is negative ($566.8 bil). GDP doesn’t account for: Leisure, Social Problems, Measures whole pie but not pieces (distribution of wealth), negative externalities (i.e. pollution). Transfer Payments (gov. spending like social security not included b/c not generating) Potential GDP: The level of real GDP attained when all firms are producing at capacity. Types: Cyclical: caused by a business cycle recession, Frictional: short-term; arises from the process of matching workers with jobs, Structural: arises from a persistent mismatch between the skills or attributes of workers and the reqs. of jobs  Natural Rate of Unemployment: Normal Rate of Unemployment=Frictional+Structural Labor Force Participation Rate: 16+, healthy, not imprisoned Emploed + Actively Looking for Work (62.9%). Potential Labor Force Marginally Attached Worker: Looked for work more than 4 weeks but less than 1 year (1.5 mil.). Discouraged Worker: Gave up looking because they believe there are no jobs (448,000); subset of marginally attached U3/U6: U3: standard measure by BLS (20%), U6: broader measure that accounts for marginally and part-time (63%). Unemployment Exists because: minimum wage laws, unemployment insurance, labor unions, efficiency wages (an above-market wage that a firm pays to increase a worker’s productivity. Consumer Price Index: Measures the prices of a “market basket” (a set of things that Nominal GDP of this year x 100 = CPI  ordinary households purchase); urban family of 4. Nomial GDP of base year use CPI for inflation rate for average household CPI doesn’t account for: Substitution Bias, New Product Bias, Quality Bias, Outlet Bias (rather than retailers); Overstates Inflation Producer Price Index: Measures the “market basket” of firms (prices firms receive for goods and services at all stages of production); includes raw goods and intermediate goods. Menu Costs: the costs to firms of changing prices.

Purchasing Power & Interest Rates: Calculate the CPI for each year. Set up CPI 2 X (value now) proportion = $∈base year CPI 1 Long-Run Economic Growth: Rising productivity increases the average standard of living (real GDP per capita, ~$6,000). Labor Productivity: Quantity of goods and services that can be produced by one worker or by one hour of work; explains long-run growth because increases in real GDP per capita depend on increases in labor productivity; 2 Determinants: Quantity of Capital (manufacture goods used to produce other goods and services) per Hour Worked, Level of Technology, property rights & other financial systems/education/health system/public transportation goods. 70 Rule of 70 (# Years to double): (GDP growth rate = GDP Growth Rate GDP 2−GDP1 X 100%) GDP 1 Financial System: Financial markets and financial intermediaries through which firms acquire funds from households. Financial Markets: Market where financial securities (stocks and bonds) are sold. Financial Intermediaries: Firms (banks, mutual funds, pension funds, insurance comp.) that borrow and lend households’ funds. Services Provided: Diversification of investment, liquidation of asset, matching borrowers and savers (information). Total Value of Saving = Total Value of Investment: Y=C+I+G (no NX); I=Y-C-G; S(private)=Y+TR-C-T (T=taxes); S(public)=T-G-TR; S(total)=Y-C-G=I  S(total)=I Market for Loanable Funds: Interaction of borrowers and lenders that determines the market interest rate and quantity of loanable funds exchanged; Supply & demand affected by willingness of households and firms to save & borrow. Crowding out: A decline in private expenditures as a result of an increase in gov. purchases Business Cycle: Alternating periods of economic expansion and economic recession....