EC 202 Exam 2 Cheat Sheet

EC 202 Exam 2 Cheat Sheet - EC 202: Exam #1 Cheat Sheet...

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EC 202: Exam #1 Cheat Sheet Stock variables Capital Debt Wealth Savings The money supply Value of bond holdings Flow variables Saving The trade deficit GDP Government spending Consumption Income Investment Government Surplus/deficit Bond interest payments Employment : READ QUESTION [UNEMP? Or EMP?] Labor Force=employed + unemployed Employed: full/part time w/in past week Unemployed: no work, made effort w/in month Out of Labor force: would like a job but have made no effort w/in month Working Age Population: 16+ Participation Rate= Labor force/WAP Unemployment Rate= unemp./labor force GDP: Y= C + I + G + NX Consumption: durables, non durables, services Investment: firms: purchases of capital goods, factories, buildings Net Exports= EX – IM Comparing GDP: new-old/old Nominal: current year prices, no correction for inflation Real: base year pricing, physical volume, show high material standard of living, life expec., educ., declines when $P increases Measuring GDP: Production: final goods/services @ market value Expenditure [C, I, G, NX] Income: Labor 75% & Capital 25% [cap to business owners, rent, interest to bondholders, royalties, patents] , whatever outcome is produced=income circular flow Consumption: firms pay out everything received as income If nominal GDP increases while real GDP falls, there must be inflation Saving : Private= [Y-T]-C all disposable money not spent Public= T-C National= Public + Private= Y-C-G S= I + NX [output not purchased by nation and bought by foreigners] Lenders vs. Borrowers Unexpected inflation: hurts creditors, aids borrowers Prices increase unexpectedly, when the borrower pays back the loan, the money has less purchasing power Reduces the value of the dollars with which the debts are repaid For a given nominal interest rate, the higher (than expected) the inflation rate, the lower (than expected) the real interest rate the lender receives Inflation and Interest Rates During periods of high inflation Nominal rates must be high as well; Lenders need to be compensated During periods of low inflation; Nominal interest rates are low as well Fisher effect The tendency for nominal interest rates to be high when inflation is high and low when inflation is low If inflation has been high recently lenders anticipate that it may continue to be high Lenders require a higher nominal interest rate so they will be compensated for the anticipated loss in purchasing power if prices continue to rise rapidly Adjusting for inflation: CPI= current/base basket Deflating: ngdp/rgdp*100=P rgdp=ngdp/p*100 Standard of Living =Total Output/# of population Average Labor Productivity = Total Output/# of workers Uncertainty costs A high inflation rate brings increased uncertainty about the long-term inflation rate Increased uncertainty also misallocates resources – instead of
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EC 202 Exam 2 Cheat Sheet - EC 202: Exam #1 Cheat Sheet...

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