Mankiw Macroecon 5th edition Notes

Mankiw Macroecon 5th edition Notes - Notes from Mankiw's...

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Notes from Mankiw's Macroeconomics 5th edition (2001) Some parts of this document were taken directly from the book. All rights reserved. # DEFINITIONS ------------- * GDP = PIB = C + I + G + NX where C = consumption I = investment G = gov expenditures NX = net exports real GDP = GDP at constant prices GNP = GDP + factor payments from abroad - factor payments to abroad :: total income earned by residents of a nation GNI = GNP :: GNI calculates the GNP by summing income, not output value GDP deflator = nominal GDP / real GDP :: an indicator of what's happening to the level of prices NNP = GNP - depreciation Notes: - There is 'investment' only when new goods are added to the economy, like when building a house from scratch. - Used goods are not counted toward the GDP: they are not an addition to the economy. - When inventories get bigger even if the goods are not sold, it is still counted toward the GDP. - For intermediary goods, we only count the added value at each step, or equivalently, the value of the final good. - Some goods which aren't traded need to be imputed a value, such as the rent homeowners would pay themselves. * CPI CPI is an indicator of the level of prices, using the change in price of a basket of goods. Different from the GDP deflator for 3 reasons: - the GDP deflator reflects the level of all prices, not just those bought by consumers - the GDP deflator includes only domestic goods, the change in price of imports is not reflected - the CPI is calculated with a fixed set of goods, substitution from one product to another or new products are not accounted for * Unemployment rate = # of unemployed / labor force * 100 where labor force is all the workers and those looking for a job or on a temporary layoff. Discouraged workers are not counted, neither are retirees and full-time students. Okun's law :: the unemployment is negatively related to the GDP growth Percentage Change in Real GDP = 3% - 2*Change in the Unemployment Rate # GENERAL EQUILIBRIUM MODEL --------------------------- This is clasical/neoclassical theory, aka the general equilibrium model The production depends on the quantity of the factors of production and on
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productivity (the ability to go from input to output). MV = PT or MV = PY where M = money V = velocity P = typical price T = # of transactions (PT) = the amount of money that changes hands Y = C + I + G Assumptions: - money is neutral, does not affect real variables - velocity of money is constant - long run :: prices are flexible - capital, labor and thus ouput, is fixed - the competitive firm is a price taker, it takes the price of inputs, outputs, and wages as given. It will then choose the quantity of each to maximize profits - savings = Y - C - G = I - the role of money is ignored - no trade with other countries - full employment - capital stock and labor force are fixed - ignored the role of short-tun sticky prices Consequences: - to maximize profits, the competitive firm must hire until the marginal product of labor equals the real wage (the wage in terms of the firm's output) - the competitive firm does the same for capital :: rent or buy more until the marginal product of capital equals
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