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ECO 202 Macroeconomics
Exam 1 Review
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Percentage Change
new - old old= x 100
(add %)
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new - old old=
new old=
old old
_–
=new old
1_–
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Linear Cyclical Seasonal Volatile
Exponential !
Type of Functions
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Linear - Line
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Cyclical - Cycle
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Seasonal - Cycle
Jan April July Oct
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Volatile - Big Swings
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0
500,000
1,000,000
Exponential
250,000
750,000
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10
100
1
1,000
10,000
100,000
1,000,000
Log Convert Exponential to Linear
Make the scale
exponential
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Chapter 23GDP
GDP Per Capita GDP Deflator
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Chapter 23 Gross Domestic Product
abbreviation definition equation
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GDP Gross Domestic Product
The market value of all final goods and services produced in a country in
a given time
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Market ValueWhat something
would sell for
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AllEverything except...
Stuff you don’t sell
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FinalIntermediate
Final
Avoid double-counting
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Final
Intermediate
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Goods and Services
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Goods
Services
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ProducedNew Stuff
Does not include the sale of used
goods
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Within a Country
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In a given period of time
Year Y/Y Quarter Q/Q
Annualized: Q x 4
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How do you calculate
GDP?Equation
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GDP =C = Consumption I = Investment G = Government X = Exports M = Imports
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GDP =C + I + G + (X - M)
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ConsumptionSpending by
households on goods and services, except new housing
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InvestmentSpending on capital
equipment, inventories, and structures, including new
housing
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GovernmentSpending on goods and services from
local, state, and federal governments.
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Net ExportsExports minus
imports
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GDP Per Capita =
GDP Population
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GDP Per Capita
best measure of relative economic
condition
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GDP Deflatormeasure of changes
in the price level !
Base Year
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GDP Deflatordeflates
price inflation
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GDP Deflator
Nominal GDP Real GDP X 100
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Inflation Rate
GDPD Year 2 - GDPD Year 1
GDPD Year 1 X 100 (add %)
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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
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Recession
Two consecutive quarters of negative
GDP growth
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Chapter 24Consumer Price Index
CPI
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CPIa measure of the overall
cost of goods and services bought by a
typical consumer
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GDP Deflator vs. CPI
GDP is everything produced
CPI is just what consumers buy
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Inflation and
GDP Deflator and CPI
Import inflation will affect CPI but on GDP Deflator
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CPI Steps1. Fix the basket
2. Find the prices
3. Compute cost
4. Choose base year and compute index
5. Compute inflation rate
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CPI
Price this year Price in the base year
X 100
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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
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Problems with CPI
substitution bias new goods
quality changes
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What increased more:
Salary or CPI?
Year CPI Salary1990 130 50,000
2014 225 100,000
% Change 73% 100%
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Year CPI Salary1990 130 50,000
2014 225 75,000
% Change 73% 50%
What increased more:
Salary or CPI?
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Year CPI Salary1990 130 50,000
2014 225 86,538
% Change 73% 73%
What increased more:
Salary or CPI?
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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?