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Study Guide for 9/28 Exam

by: Danielle Rios

Study Guide for 9/28 Exam EC 225

Danielle Rios
GPA 3.6

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About this Document

This study guide covers Chapters 8-10.
Principles of Macroeconomics
Dr. Chen Wu
Study Guide
Macroeconomics, business
50 ?




Popular in Principles of Macroeconomics

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This 3 page Study Guide was uploaded by Danielle Rios on Friday September 16, 2016. The Study Guide belongs to EC 225 at Southeast Missouri State University taught by Dr. Chen Wu in Fall 2016. Since its upload, it has received 25 views. For similar materials see Principles of Macroeconomics in Economics at Southeast Missouri State University.


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Date Created: 09/16/16
Principles of Macroeconomics Study Guide Chapter 8  Microeconomics vs. Macroeconomics o Micro focuses on how firms and households make choices o Macro focuses on the overall economy  What Makes Up GDP o Consumption (spending by household on items which do not include new houses) o Investment (spending on firms on durable goods like office spaces, goods that have been produced but not sold, and spending on residential houses) o Government Purchases (transfer payments are not included) o Net Exports o GDP = C + I + G + NX  Gross National Product (GNP): Final goods and services produced by U.S. residents (including overseas production  Real vs. Nominal GDP o Real GDP is used to find the value of all final goods and services taken into account at base year price  Calculation: RGDP Current YearCurrent YearBase Year o Nominal GDP is used to find the value of final goods and services using the current year’s prices  Calculation: NGDP Current YearCurrent YearCurrent Year  GDP Deflator measures the average prices of goods and services in a country’s economy o (Nominal GDP / Real GDP) * 100  Final vs. Intermediate Goods Chapter 9  Labor Force: employed + unemployed  Unemployment Rate o Calculation: (unemployed/labor force) * 100  Identify who is and who is not in the labor force (students, prisoners, retirees, etc.)  Discouraged Workers are people who are capable of working, but have not looked for a job in the previous month  Labor force participation rate measures the percent of working-age (16+) individuals in the labor force o Calculation: (labor force/working-age population) * 100  Employment-population ratio measures the percent of the working-age who are employed o Calculation: (employment/working-age population) * 100  Understand and be able to do a problem which is similar to the 1.7 example we did in class o Pages 277-279 in the book show examples of these calculations o Example problem Working-age Population Employment 150,832,000 Unemployment Unemployment Rate 5.1% Labor Force Labor Force Participation Rate 62.4% Employment-Population Ratio o Understand that a change in the unemployment rate may or may not affect the labor force participation rate o If employment-population ratio increases, labor force participation rate typically increases  Know the types of unemployment o Frictional o Structural o Cyclical o Full  Efficiency Wages: when employers increase wages to increase how productive their employees are  Consumer-Price Index measures change in prices of goods and services over time o Calculation: (expenditures in current years/ expenditures in base year) * 100 o Example on pg. 292  Producer-Price Index o Calculation: Value in Current Year = Value in Base Year * (CPI / CPI ) Current Year Base Year o Example on page 295  Real vs. Nominal Interest Rate  Menu costs: the costs firms experience to change their prices Chapter 10  Calculating Growth Rates o ((Real GDP Growth Rate of Current Year - Real GDP Growth Rate of Previous Year) / Real GDP Growth Rate of Previous Year) * 100 o Ex. Real GDP 2009 = 14.3 billion Real GDP 2010 = 15.1 billion Growth Rate = ((15.1-14.3) 14.3) * 100  Rule of 70 o Number of years to double = 70/Growth Rate  Factors Affecting Long-Term Growth o War o Labor Productivity  Capital (per hour worked and human capital)  Technology and Entrepreneurs  Property Rights o Understand how these factors affect economic growth  Financial Markets vs. Financial Intermediaries o Market: stocks, bonds and financial securities are bought and sold here o Intermediaries: banks, mutual funds, firms, etc.  Saving o S privateY + TR – C – T o S publicT – G - TR o Total Saving  SprivateSpublic  S = (Y + TR – C – T) + (T – G – TR)  S = Y – C – G  S = I  Market for Loanable Funds o Understand changes in supply, demand, the factors which would lead to those changes, and how they affect the graph (slides 21-23 on PowerPoint) o Summary of the Loanable Funds Model on pg. 331 shows how certain variables affect the supply and demand curves in the Loanable Funds Market  The Business Cycle o Expansion phase o Business cycle peak o Recession phase o Trough o Understand how the business cycle affects firms, inflation and unemployment  Workers reduce spending as income decreases in a recession  Purchases of durable goods are more widely affected by recessions  Inflation rate rises toward the end of expansion, falls during recessions  Unemployment rate increases during and right after recessions  Great Moderation o The importance of services and financial stability have increased o Unemployment insurance was established o Government has become more active with stabilization policies


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