Quick Note Summaries Overview Important Notation o o o Y Real GDP P Price Level Average price of all kinds of goods produced i e cellphone as opposed to Motorola Razor P Y Nominal GDP Monday September 13 2010 11 27 AM GDP Nominal GDP is the value of all good and services measured at the current price The Sum Total of All Final Goods and Services Produced in the Economy GDP is the Market Value of all final goods and services produced within a country in a year Real GDP vs Nominal GDP Real GDP is the value of all goods and services measured at a constant price level Pick a base year Government uses modern chain link instead of simple base 3 Q09 3 P05 N Q09 1 P05 1 Q09 2 Q09 2 P05 P05 N Measures the current level of prices relative to the level of pries in the base year 2009 GDP deflator 2009 Nominal GDP 2009 Real GDP 100 Measures changes in the prices of things that an average consumer buys Real GDP Population or Y Pop An estimate of what GDP would be if all the factors of production had been used at their normal rates Y Real GDP P Price Level Average price of all kinds of goods produced i e cellphone as opposed to Motorola Razor P Y Nominal GDP GDP Deflator The CPI Per Capita GDP Potential GDP Important Notation Problems with CPI Substitution Bias Increase in Quality Bias New Product Bias Outlet Bias Growth is the change in real GDP over time Semester Overview Key Macro Variables o GDP o o Unemployment Inflation o The Economy in the Long Run Economic Growth The Economy in the Short Run o The Business cycle o Aggregate Demand o Aggregate Supply Formulas Wednesday September 15 2010 11 14 AM Measuring GDP The Expenditure Method Y GDP C Consumption I Investment G Government Purchases NX Net Exports Net Exports Exports Imports Y C I G NX C I G NX is Aggregate Expenditure Inflation between two years with CPI CPI in later year CPI in earlier year CPI in Earlier year 100 Measuring Nominal GDP 1 P09 P09 Real GDP vs Nominal GDP 1 Q09 2 Q09 2 P3 Q09 3 P09 N N Q09 Real GDP is the value of all goods and services measured at a constant price level Pick a base year P05 3 P05 N Q09 1 P05 1 Q09 2 Q09 3 Q09 2 P05 N The GDP Deflator Ratio of Nominal GDP to Real GDP times 100 100 for the base year Measure of Price level Measures the current level of prices relative to the level of pries in the base year 2009 GDP deflator 2009 Nominal GDP 2009 Real GDP 100 Unemployment rate Number unemployed Number in labor force 100 Real per capita GDP Real GDP Population Y pop Growth Rate between two years Real GDP in Later Years GDP in Earlier Year GDP In earlier Years The Rule of 70 Years to double 70 Growth Rate expressed as a number greater then 1 not a decimal Growth rate of 2 will take 35 years to double Present Value Future Value 1 i t o Productivity Productivity Real GDP Person Hours Important Notation o o o Y Real GDP quantity of output produced L Number of labor hours So productivity Y L output per labor hours K Capital L Capital per labor hour The stock of equipment and structures used to produce g s is called physical capital denoted K L Denotes number of labor hours worked Y L output per labor hour or productivity K L Capital per labor hour o MPC Change in in Consumption Change in Disposable income o o o o o o 80000 X 1 16 6 Exam Formulas Tuesday December 14 2010 3 04 PM GDP deflator 2009 Nominal GDP 2009 Real GDP 100 CPI Cost of Basket Cost of Base Year 100 Labor Force Participation rate labor force adult population 100 Unemployment rate Number unemployed Number in labor force 100 Rule of 70 70 Growth Rate expressed as a number greater then 1 not a decimal Productivity Y L L Number of labor hours MPC Change in in Consumption Change in Disposable income Current disposable income YD Y T TR Transfer payments Bond price coupon payment1 1 i Coupon Payment2 1 i 2 Stock price Dividend payment1 1 i Dividend Payment2 1 i 2 Stock Price Dividend i growth rate E PriceForiegn PriceDomestic Real exchange rate e P domestic E P Foreign If e is greater then 1 the foreign currency is undervalued relative to the domestic If implied rate is less then the actual the currency is undervalued S T G I NC NCO NX Present Value Future Value 1 i t Value in earlier year dollars CPI Later CPI Earlier Y 1 1 CY G 1 1 Cy Money Multiplier Y CY 1 CY T Tax Multiplier Quantity Equation P M Y Final Exam Review Tuesday December 14 2010 5 12 PM Interest Rate logic chain o real interest rate of the U S increases Demand for dollar denominated assets increases Demand for the dollar increases E increases nominal exchange rate e increases Import increase Net Exports decrease o Current Account Financial Account o If NCO 0 Domestic purchases of foreign assets exceed foreign purchases of domestic assets o Arises because every transaction that affects NC also affects NCO by the same amount NCO NX and vice versa S T G I NCO If a country has a trade deficit net capital outflow must be negative and saving is smaller than investment To in the short run raise GDP and price level The AD curve shifts right o A steep short run aggregate supply SRAS curve implies that monetary policy by the Fed will have a bigger impact on the price level than if SRAS were flatter o o o Gross Domestic Product Email Daryl Graves degraves bu edu for scheduling issues and bring a copy with Access to my Econ lab for 5 Go to Barnes and Noble after Friday and get access card Wednesday September 08 2010 9 29 AM Fundamental Concepts of Macroeconomics GDP The Sum Total of All Final Goods and Services Produced in the Economy o o GDP is the Market Value of all final goods and services produced within a country in a year The Expenditure Method The Value Added Method The Income Method Nominal GDP is the value of all good and services measured at the current price Measuring GDP o National Income Accounting o o o Calculated by Bureau of Economic Analysis BEA www BEA gov Issued as NIPA or National Income and Product Accounts State Government spends more then Federal Government The Expenditure Method Calculates GDP by adding the value of expenditures of all final goods and services in the economy Investment Purchases by firms that will produce new goods Property machines factories inventory Not shares Transfer Payments Social Services that do not produce goods are not included in GDP Bank Bailout TARP loans Y GDP C Consumption I Investment G Government Purchases NX Net Exports Net Exports …