ECON midterm

ECON midterm - Useful equations Labor Labor force = #...

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Useful equations Labor Labor force = # employed + # unemployed Labor force participation = labor force / adult population Adult population = labor force + not in labor force Unemployment rate = (# of people unemployed / labor force) x 100 Real interest rate = nominal interest rate – inflation rate Inflation Inflation rate between t and t-1 = (CPI in t – CPI in t-1) / CPI in t-1 x 100 - defined as the percentage change in price levels from a previous period GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad. GDP at Market Prices = GDP at factor costs – subsidies + indirect taxes GDP at factor costs = GDP at market prices + subsidies – indirect taxes GDP deflator = Nominal / Real To calculate the inflation rate using the GDP deflator - Use value of [GDP deflator 2009 – of value GDP deflator 2008] / value of GDP deflator 2008 - COLA Clause To measure the effect of a COLA clause, compare the cost of the basket of goods in one year over the relevant year and then subtract 1 i.e. [(Basket1 / Basket2) -1] x 100 - this will give you the rate that his basket rose - Compare this # with the inflation rate o If the rate that his basket rose is a higher number than the inflation rate, then he is worse off GDP Value added approach refers to final goods in the market GDP = Y = C+ I + G + NX (CING) - Net Exports (NX) = Exports – Imports - If you import a product from abroad, the net effect on the GDP is 0 since it had to be consumed, but net exports decreases Income Approach GDP = Total wages + profits + rents + interest (TWIRP) - these wages are calculated pre-tax Growth Rate - (NGDP 2008 – NGDP 2007) / NGDP 2007 - (RGDP 2008 – RGDP 2007) / RGDP 2007
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Analysis - GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services. Money continuously flows from households to firms and then back to households, and GDP measures this flow of money. GDP is generally regarded as the best single measure of a society’s economic well-being. - Employment - Employment and unemployment can both rise if the labor force grows faster than employment. CPI - Fix the “basket” - Find the prices - Compute the basket’s cost - Choose a base year and compute the index o The CPI in any year equals 100 x (Cost of basket in current year / Cost of basket in base year) - Compute the inflation rate by doing new – old / old Problems with the CPI - The CPI is more commonly used as a gauge of inflation than the GDP deflator is because the CPI better reflects the goods and services bought by consumers. -
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ECON midterm - Useful equations Labor Labor force = #...

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