Econ 322 Midterm 2 Study Guide
Econ 322 Midterm 2 Study Guide Econ 322
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This 4 page Study Guide was uploaded by Tulsi on Saturday March 26, 2016. The Study Guide belongs to Econ 322 at University of South Carolina taught by Hauk in Spring 2016. Since its upload, it has received 68 views. For similar materials see Intermediate Macroeconomics in Economcs at University of South Carolina.
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Date Created: 03/26/16
Exam 2 Study Guide Thursday, March 24, 209:55 PM Formulas and Equations S-I = NCO = NX Savings - Investment = Net Capital Outflow = Net Exports Nominal interest rate e = Real Exchange Rate € = P = price in domestic country; P = price in foreign country Purchasing Power Parity In the long run, € converges to 1 € = 1 = Mundell Fleming Model: IS*: Y = C(Y-T) + I(r*) + G + NX(e) LM*: M/P = L(r*, Y) r = r* + LM*: M/P = L(r* + IS*: Y = C+I(r* + Sticky Price Model: SRAS: Y= Y + α(P-E[P]) P = E[P] + E[P] = expected price Phillips Curve: -short run trade-off between inflation and unemployment π =E[π] - β(u - u ) + v π = E[π] + N π=inflation u = unemployment rate, u =Nnatural unemployment rate v = supply shock Okun's Law: -negative relationship between unemployment and GDP uN) Misery Index: inflation rate + unemployment rate Sacrifice ratio∆ unemployment = u ∆ ∆inflation ∆π Graphs S-I = NCO (supply of domestic currency) € €* Exam 2 Study Guide Page 1 €* NX(e) demand for domestic currency NX NX € S-I = NCO -If a small, domestic country runs a budget deficit: €* -NX decreases -€ increases NX(e) NX € S-I = NCO -If a big, foreign country runs a deficit €* -Net exports increase, therefore NCO increases -€ decreases NX(e) NX € -If an import tariff is put in place (trade protection) €* -Net exports shifts out -€ increases -"NX" stays the same NX(e) NX NX e LM* Exam 2 Study Guide Page 2 e LM* Mundell-Fleming Model (IS* - LM* Model) Short run model with sticky prices e* IS*: Y = C(Y-t) + I(r*) + G + NX(e) LM*: M/P = L(r*, Y) IS* € = Y* Y SUMMARY TABLE FOR GRAPHS Floating Fixed Exchange Exchange rate Rate Y e NX Y e NX Increase No increase decrease increase No change No Govt change change Spending Increase increase decrease Increase No change No change No Money change Supply Import No increase No increase No change increase Restriction change change Sticky Price Model LRAS: Y = F(K,L*E) P SRAS: Y= Y + α(P-E[P]) If prices are higher than expected, Y would be greater than Y If prices are lower than expected, Y would be less than Y P = E[P] + E[P] = expected price If people expect higher prices, SRAS will shift up If people expect lower prices, SRAS will shift down If s = 1 (all firms have sticky prices) -SRAS is horizontal If s = 0 (all firms have flexible prices) -SRAS is vertical AD: IS-LM The more firms have flexible prices, the steeper the slope of SRAS Y Imperfect Information Model -All firms have flexible prices Phillip's Curve Exam 2 Study Guide Page 3 Phillip's Curve π -short run trade-off between inflation and unemployment E[π] uN u Exam 2 Study Guide Page 4
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