Formulas to know for Macro Economics:Key:Land=L Labor=N Capital=K Entrepreneurship=eRent=R Wages=W Interest=i Profit= ΠInflation= Π Expected= Π^o Happened= ΠIncome=GDP=Y Consumers=C Suppliers=I Government=G Exports=X Imports=MPrivate Sector=C+I (Consumers and Suppliers) Public Sector= G (Government)Statistical Adjustment=SA Quantity=Q Price=PLabor Force= LF= U+E Unemployed=U Employed=ETax Revenues= T Interest Rate=irMarginal Propensity Spending=MPS Marginal Propensity Consumption=MPCFormulas:Total Revenue= Base x Height on Supply and Demand CurveProducer Surplus= ½ Base x Height on Supply and Demand CurveConsumer Surplus= ½ Base x (Height- Market price) on Supply and Demand CurveGDP Per Capita= (GDP/Population) x 100Expenditures approach to calculate GDP= Y= C+I+G+(X-M)If X>M; Exporting moreIf X<M; Importing moreNet exports= X-MIncome/Cost approach to calculate GDP= Y=R+W+i+ Π+ SATo measure inflation Y=QPIf Q increases= goodIf P increases= badReal GDP= (Nominal/CPI) x 100Inflation rate= (Current CPI-Last Years CPI)/(Last years CPI) x 100Growth Rate of RGDP= Change in RGDP/time= slope of Business Cycle GraphCivilian Labor Force= U+EUnemployment Rate= (# of U)/(U+E) x 100Labor Force Participation Rate= (U+E)/Population x 100Employment to Population Rate= E/population x 100Anticipated inflationNominal GDP= RGDP + Inflation ExpectedNGDP=RGDP+ Π^oFiscal Policy= Change in G and change in TG=T means a balanced budgetG<T means a surplusG>T means a deficitProfit= Total Revenue-Total CostΠ = TR-TCWhere Profit>0Total Revenue= Price x QuantityP x QTotal Cost= (LNKe) x (RWi Π)p x qAverage Price Level= APL= Price of Goods and Services + Price of ResourcesShort Term= APL increases, Profits increase, Producers produce moreLong Term= APL increases, Total Revenue increases, Profits have no changeReal interest rates= opportunity cost of $ + risk of default premiumNominal interest rates= real interest rate + inflation premiumEx ante nominal interest rates= real interest rate + Π^oEx post real interest rate= nominal – inflation premiumMPC= change in Consumption/change in income= change in C/Change in YMPS= change in Spending/change in income= change in S/change in YMPC+MPS=1 OR MPC+MPS=100% of disposable incomeDisposable income=income after taxes= Y-TMultiplier=1/MPS OR Multiplier= (1/(1-MPC))Graphing Key Words:Interest Rates= Loanable Funds Graph (Relationship between Q and ir)S= Savers/LendersD= BorrowersRent, Profit, Wages, Interest=Equilibrium in 4 Major Markets Graph (Land, or Entrepreneurship,or Labor, or Capital)Average Price Level= Goods and Services GraphLabel new equilibrium Y actual when SRAS or AD shiftLabel new equilibrium Y FE2, POT2, NRU2 when LRAS And SRAS shiftEverything to the left of LRAS is a weak economyEverything to the right of LRAS is a strong economyPrice= Supply and Demand GraphTax Rates= Laffer Curve Graph (Bends back due to tax avoidance and low work incentives)Real GDP Over Time= Business Cycle GraphInvestment VS. Consumer Goods= Productions Possibilities CurveChapter 8: Business Cycles, Unemployment & Inflation- A Business Cycle Graph:o Shows how Real GDP changes over timeo If actual RGDP is beyond potential we are producing a lot (Peaks= Booming Economy)o If actual RGDP is below potential we are not producing enough (Troughs=Busting economy)o Contractionary phase (GDP and income are declining)o Expansionary phase (GDP and income are recovering)o GDP increases, Unemployment decreases. GDP decrease, Unemployment increases. o Healthy rate of unemployment is 4-6% and is a point on the potential lineo Full employment = 95% of Labor Force has a job- What are economic indicators that help determine the business cycle?o A) The civilian labor force Labor Force = Unemployed + Employed (LF=U+E) To be considered part of the labor force, one must be 16 years or older, non-institutionalized, willing and able to work. Retirees are NOT included in the Labor Force Discouraged workers are NOT included in the labor force, so when they stop looking for jobs, unemployment rates decreases, which is an inaccurate statistic. - Example: Cuba’s government forces people to have jobs, but people just show up to work and don’t do their job. Unemployed: A person who does not have a job but who is actively seeking a jobor waiting to begin a job or return to a job Ex. A contractor without jobs for a week Having 0 unemployment is bad! Ex. Cuba requires everyone to have a job. o B) Unemployment Rate (# of Unemployed/Labor Force) x (100) (U/(U+E))x(100) Military is excluded from this because they are considered to have a job. Minimum wage laws raise unemployment rates in the U.S. Laws against firing personnel raised unemployment for Youth in Europe. Unemployment is an inaccurate measure because it is hard to tell if someone is actually willing and able to worko C) Labor Force Participation Rate (Labor Force/Population)x(100) ((U+E)/Population)x(100) Population includes only non-institutionalized 16+ year olds Half Glass Empty Methodo D) Employment to Population Ratio (Employed/Population)x(100) (E/Population)x(100) Population includes only non-institutionalized 16+ year olds Half Glass Full Methodo Ex. Population=90, Employed=40, Unemployed=10, Retired=15 Labor Force= U+E= 10+40= 50 Unemployment rate= (U/(U+E)) x (100) = (10/10+40) x (100) = (10/50) x (100)= 20% Labor Force Participation Rate= (U+E/Population) x (100)=(40+10/90) x (100) = (50/90) x (100) = 55.5555 Employment to Population Ratio= (E/Population) x (100)= (40/90) x (100)= 400/9 = 44.4444- Recession= decrease in Real GDP for two or more consecutive quarters (1 quarter= 3 months, 2 quarters= 6 months)o When the graph trends downwardso Government laws interfere with the markets and have caused recessions to last longero The Progressive Era increased Government Involvement (After World War II) Woodrow Wilson was president in 1913 and this marks the increase- Federal Reserve is established- Internal Revenue Service (IRS) is established- Types of unemployment:o A) Natural Rate of Unemployment is the healthy rate of unemployment, which is generally between 4-6% 1) Frictional Unemployment- is when someone is between jobs. This results from lack of information in the labor market. - Skills match jobs, but jobs are hard to find- AKA search time unemployment- Ex. You work at NASA and are qualifies, but the supervisor fires you due to
View Full Document
Unlocking...