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Macroeconomics Study Guide

by: Kiera Mossburger

Macroeconomics Study Guide ECON 200-002

Kiera Mossburger

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About this Document

This study guide covers topics that will be included in the exam.
Principle Macroeconomics
Paul George Burkett
Study Guide
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This 3 page Study Guide was uploaded by Kiera Mossburger on Sunday September 25, 2016. The Study Guide belongs to ECON 200-002 at Indiana State University taught by Paul George Burkett in Fall 2016. Since its upload, it has received 4 views. For similar materials see Principle Macroeconomics in Macro Economics at Indiana State University.

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Date Created: 09/25/16
Macroeconomics Study Guide 1. Define what economics is, and the uses of economics.  2. Why can there never purely be a positive analysis?  3. What is a model, and what are the pitfalls in models? Why are models more likely to be  quantitative?  4. What are the three main issues in macroeconomics? Explain the consumer price index  and how to calculate it. 5. What are the four categories of GDP on the production side? 6. What is the formula for GDP as spending? Describe what each part of the equation is. 7. Describe the formula for GDP on the saving side. What are the sources of saving? 8. What is the Gini coefficient? What is a GDP deflator? 9. What are the types of unemployment? Which ones are involuntary, and which ones are  voluntary? 10. How do you calculate the official unemployment rate? Is this accurate?  Macroeconomics Answers 1. Economics is the study of the production and distribution of wealth. The uses of  economics are: to be an economist, to train for other careers, to make personal economic  decisions, to make political choices, and to understand the world we live in.  2. There can never be a purely positive analysis because of: the choice of subject matter, the choice of questions to ask/ not ask, conclusive testing isn’t always possible, and  economists are part of the economy. 3. An economic model is a set of assumptions used to understand and predict economic  processes. Pitfalls include the fallacy of composition, treating a whole system as just the  sum of the parts. Models are quantitative in order to: clarify an assumption, to make more precise predictions, and to increase model testability using data. 4. The issues of macroeconomics are the level and growth of economic activity, the jobs  picture, and the price level and inflation. Production = spending = income. With  population growth, there is more unemployment. The amount of people entering the  workforce is greater than the number of people retiring from the workforce. Technology  also replaces workers.  Unemployment is involuntary. Inflation is the raise in the general  level of prices or the reduction in purchasing power of money. The Consumer price index is the measure of the average change over time in the prices paid; has problems  measuring inflation. A dollar doesn’t measure what it used to. Calculate CPI by Current Priceof anItem ( ∗100 −)00 .  Previous Priceof anItem 5. GDP is a flow, not a stock. GDP = Production = Spending = Income. GDP is measured in terms of money. GDP doesn’t measure total sales by all firms, instead, it measures the  value added or the value of final goods. 6. GDP = C + I + G + Nx. C is the consumption. I is the investment of the firms such as;  plant equipment, inventory changes, intellectual property products, and housing. G is the  government purchases. Nx are the net exports. 7. Saving = I + (G­Taxes) + Nx. Positive net exports, trade surplus, is the net outflow of  saving to the rest of the world. Negative net exports, trade deficit, is the net inflow of  foreign savings.  A 8. A+B  Where A is the area above the actual distribution and B is the area below the  actual distribution. A GDP deflator is a benchmark or a basis for comparison. 9. Seasonal unemployment are jobs only available during certain times of the year; caused  by seasonal changes in the demand for labor by firms. Seasonal unemployment is the  most voluntary. Frictional unemployment is when a job is out there, but one hasn’t found  it yet. Frictional unemployment is the least involuntary. Structural unemployment is a  serious mismatch between job­openings and job seekers. Structural unemployment is  more involuntary than frictional. Cyclical unemployment is when the number of job­ openings are less than the number of job seekers. Cyclical unemployment is the most  involuntary.  officallyunemployed ∗100 10. Official unemployment rate =  officiallabor force . This is not as accurate  because it does not include all types of unemployment. The official unemployment rate is much higher than what is calculated. 


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