Macroeconomics Chapters 5, 6, 7

GDP deflator

Nominal GDP/Real GDP * 100

3 approaches to GDP

Production (P1*Q1) + (P2*Q2...) Income (Wages+Profit+Interest+Rent) Spending (C+I+G+NX)

Growth Rate of RGDP per capita

RGDP per capita(t) - RGDP per capita(t-1) / RGDP per capita (t-1) * 100 Measures economic growth

Economic Growth

RGDP(t) - RGDP (t-1) / RGDP (t-1) * 100

Labor Productivity

measures amount of goods/services produced by one hour of labor (Physical capital, human capital, technology) *Technology driving factor* Output per worker = RGDP/ # of employed Output per hour = RGDP/ # of working hour

GDP

total market value of all final goods and services produced within a country in a given period of time

Growth Rate of NGDP per capita

NGDP per capita (t) - NGDP per capita (t-1) / NGDP per capita (t-1) * 100

Growth Rate of NGDP

NGDP(t) - NGDP (t-1) / NGDP(t-1) * 100

Imported Consumers Goods

-included in CPI -excluded from GDP deflator

NGDP Per Capita RGDP Per Capita

NGDP/Population RGDP/Population (Measures standard of living)

DPI (Disposable Personal Income)

(Wages+Profits+Interest+Rent) + (Transfers) - (Taxes)

Capital Goods

-Excluded from CPI -Included in GDP deflator if produced domestically

How to Find CPI (Consumer Price Index)

1) Fix basket 2) Find prices 3) Compute basket's cost 4) Choose base year and compute index 5) Compute inflation rate

Government Spending

All spending on goods/services purchased by governments *GDP excludes government transfer payments and taxes*

A decrease in price of Irish whisky imported to U.S.

CPI decreases, GDP deflator not affected

Inflation Rate

CPI(t) - CPI (t-1) / CPI (t-1) * 100

Net Exports

Exports - Imports X > IM (Trade surplus) X< IM (Trade deficit)

A decrease in price of nuclear reactors produced domestically

GDP deflator decreases, CPI not affected (not in shopping basket)

U.S. government purchases plane

GDP deflator increases, CPI not affected (plane not in shopping basket)

GDP Per Capita

GDP/Population

An increase in price of bread produced domestically would?

Increase CPI and GDP deflator

Growth Rate of Labor Productivity

LP(t) - LP (t-1) / LP (t-1) * 100 (Standard of Living)

A decrease in price of tractors imported into U.S from Russia would?

Leave both GDP deflator and CPI unchanged

CPI

Measure of cost of living Most widely used measure of inflation, more accurate than GDP deflator Total cost of basket / total cost of basket in base year * 100 ex) CPI for this year is 133.7. This means that prices rose 33.7 percent over the base year

Inflation

Sustained increase in general level of prices for goods/services GDP deflator(t) - GDP deflator (t-1) / GDP deflator (t-1) *100

Government Budget Balance

T - (G+Tr) T> G+Tr (Trade Surplus) T< G+Tr (Trade deficit)

Consumer spending

Total spending by households on final goods/services

Investment spending

Total spending on goods (productive physical capital) that will be used in future to produce more goods i.e. purchase of new home *Does NOT include purchase of financial assets like stocks and bonds* *Government spending = G+TR*

2 facts

Vast differences in living standards and growth rates

Long-run economic growth

sustained upward trend in economy's output per person over time