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
