exam 1 review

ECO 202 Macroeconomics

Exam 1 Review

Percentage Change

new - old old= x 100

(add %)

new - old old=

new old=

old old

_–

=new old

1_–

Linear Cyclical Seasonal Volatile

Exponential !

Type of Functions

Linear - Line

Cyclical - Cycle

Seasonal - Cycle

Jan April July Oct

Volatile - Big Swings

0

500,000

1,000,000

Exponential

250,000

750,000

10

100

1

1,000

10,000

100,000

1,000,000

Log Convert Exponential to Linear

Make the scale

exponential

Chapter 23GDP

GDP Per Capita GDP Deflator

Chapter 23 Gross Domestic Product

abbreviation definition equation

GDP Gross Domestic Product

The market value of all final goods and services produced in a country in

a given time

Market ValueWhat something

would sell for

AllEverything except...

Stuff you don’t sell

FinalIntermediate

Final

Avoid double-counting

Final

Intermediate

Goods and Services

Goods

Services

ProducedNew Stuff

Does not include the sale of used

goods

Within a Country

In a given period of time

Year Y/Y Quarter Q/Q

Annualized: Q x 4

How do you calculate

GDP?Equation

GDP =C = Consumption I = Investment G = Government X = Exports M = Imports

GDP =C + I + G + (X - M)

ConsumptionSpending by

households on goods and services, except new housing

InvestmentSpending on capital

equipment, inventories, and structures, including new

housing

GovernmentSpending on goods and services from

local, state, and federal governments.

Net ExportsExports minus

imports

GDP Per Capita =

GDP Population

GDP Per Capita

best measure of relative economic

condition

GDP Deflatormeasure of changes

in the price level !

Base Year

GDP Deflatordeflates

price inflation

GDP Deflator

Nominal GDP Real GDP X 100

Inflation Rate

GDPD Year 2 - GDPD Year 1

GDPD Year 1 X 100 (add %)

GDP Inflation RateGDPD Year 2 - GDPD Year 1

GDPD Year 1 X 100

276 - 240

240 X 100

= 15%

Year 1 = 240

Year 2 = 276

36

240 X 100

Recession

Two consecutive quarters of negative

GDP growth

Chapter 24Consumer Price Index

CPI

CPIa measure of the overall

cost of goods and services bought by a

typical consumer

GDP Deflator vs. CPI

GDP is everything produced

CPI is just what consumers buy

Inflation and

GDP Deflator and CPI

Import inflation will affect CPI but on GDP Deflator

CPI Steps1. Fix the basket

2. Find the prices

3. Compute cost

4. Choose base year and compute index

5. Compute inflation rate

CPI

Price this year Price in the base year

X 100

CPI Inflation RateCPI Year 2 - CPI Year 1

CPI Year 1 X 100

143 - 130

130 X 100

= 10%

Year 1 = 130

Year 2 = 143

13

130 X 100

Problems with CPI

substitution bias new goods

quality changes

What increased more:

Salary or CPI?

Year CPI Salary1990 130 50,000

2014 225 100,000

% Change 73% 100%

Year CPI Salary1990 130 50,000

2014 225 75,000

% Change 73% 50%

What increased more:

Salary or CPI?

Year CPI Salary1990 130 50,000

2014 225 86,538

% Change 73% 73%

What increased more:

Salary or CPI?

If you loan some one 100 riyals for one year and the inflation rate is 13 percent, how many

riyals should you ask for in return?