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Every Macro Formula- Do You Know These?? Absolute and comparative advantage- Chap. 1

give get

Food Clothing

U.S.A 12 2

Japan 2 3

1. ab. advantage- food: U.S.A. 1. ab. advantage- grapes: Mar 2. comp. advantage- food: U.S.A. 2. comp. advantage- grapes: Mary why? 2/12 is < 3/2 why? 5/9 is < 7/8 3. comp. advantage- clothing: Japan 3. comp. advantage- nuts: Tom why? 2/3 is < 12/2 why? 8/7 < 9/5 GDP or nominal GDP or current GDP- Chap. 17 GDP- the total value of all new goods and services produced in an economy during a specified period of time without the general change in the price level (inflation or deflation) taken into account; GDP includes spending by consumers (C) + businesses (I) + the government (G) + or – net exports (X) (exports-imports) Real GDP or real output or output of production- Chap. 17 real GDP- a country's GDP that is adjusted to take into account the general change in the price level (inflation or deflation) over time (from year to year) The velocity of money- Chap. 17 1. velocity of money and its equation- the average frequency with which a unit of money is spent in an economy

The annual growth rate of real GDP (Y) per capita- Chap. 17 1. real GDP per capita and its formula- a country's real GDP divided by the number of people in the country's population 2. annual growth rate of real GDP per capita- the percentage increase in the real GDP per capita each year from the previous year; the best indicator of a country's economic growth and status. 3. If the 1st year’s per capita= $1,000 and the 2nd year’s per capita= $1,099, what was the annual growth rate? 9.9%

The nominal interest rate- interest rate on a loan, making no adjustments for inflation: real rate + inflation The real interest rate- the nominal rate – the expected inflation rate Example: 1. If the nominal interest rate (ir) is 7% and expected inflation is 3%, what is the real interest rate? 4%

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The GDP deflator- Chap. 18 1. GDP deflator- measures the price level inflation in an economy; it is a measure of the price level (PL), which is the average level of all the prices of the items in real GDP

Examples: 1. The nominal GDP is $20 and the real GDP is $10. Calculate the GDP deflator. 200 2. The nominal GDP is $100 and the real GDP is $20. Calculate the GDP deflator. 500 The unemployment rate- Chap. 20 percentage of the labor force (those 16 and older that either have a job or are looking) that are unemployed

The labor force participation rate- Chap. 20

The marginal propensity to consume (MPC) and marginal propensity to save (MPS)- Chap. 23 marginal propensity to consume (MPC)- this measures how much people consume (spend) rather than save when there is a change in income

Examples: 1.If you receive $100 more and spend $50 more. MPC= .5 2.If you receive $100 more and spend $80 more. MPC= .8 marginal propensity to save (MPS)- this measures how much people save rather than consume when there is a change in income

Examples: 1. If you received $100 and save $50. MPS= .5 2. If you received $100 and save $20. MPS= .2 3. If the MPC is .6, what is the MPS? MPS= .4

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The money multiplier- Chap. 24 money multiplier- the expansion or contractions of a country's money supply that results from banks being able to lend; the amount depends on if the money is already in the money supply or not

Examples: 1. Assume the reserve requirement/reserve ratio is .10. If the FED buys $10 billion worth of bonds, the money supply (MS) will increase by $100 billion. 2. Assume the reserve requirement/reserve ratio is .20. If the FED sells $10 billion worth of bonds, the money supply (MS) will decrease by $50 billion. Banking- Chap. 24

1. If the reserve requirement is .1 (or 10%), how much are this bank’s required reserves and excess reserves? required= $2,000 ($20,000 in demand deposits x 10% rr) and excess= $3,000 ($5,000 in total reserves - $2,000 required) 2. What is the maximum possible increase in the money supply if the bank loaned out all $3,000 of its excess reserves? (finish page 19 before answering this)

$30,000 (1 / .1= 10 then $3,000 x 10) 3. Assume a customer deposited $5,000 into this bank. What would be the initial change in the money supply (before the money was loaned out)? none; money has to be loaned out in order to for it to impact the money supply 4. Assume a customer deposited $5,000 into this bank. If the entire $5,000 was placed in reserves, how much would demand deposits be and how much would required reserves and excess reserves be? *Demand deposits would = $25,000 ($20,000 demand deposits already in the bank + $5,000 new deposited) *Required reserves would = $2.500 (the new $25,000 in demand deposits x 10% reserve requirement) *Excess reserves would = $7,500 (the new $25,000 in demand deposit x 10% reserve requirement= $2,500 in required reserves; only $2,000 is currently in required reserves; of the new $5,000 deposit, $500 will go into required reserves and the remaining $4,500 into excess reserves ($3,000 currently in excess reserves + $4,500)