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Economics 214 Macroeconomics Exam Summary
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ECONOMICS 214 – MACROECONOMICS EXAM SUMMARY
2018
By Pablo Rees and Steph Meek
,Contents
Chapter 1 – A Tour of the World ............................................................................................... 3
Chapter 2 – A Tour of the Book ................................................................................................. 6
Gross Domestic Product ........................................................................................................ 6
Nominal and Real GDP ........................................................................................................... 6
The Unemployment Rate ....................................................................................................... 6
Different types of unemployment (Ecos 114) ....................................................................... 7
Inflation .................................................................................................................................. 7
Okun’s Law ............................................................................................................................. 8
Chapter 3 – The Goods Market .................................................................................................. 9
Consumption (C) .................................................................................................................... 9
The Determination of Equilibrium Output .......................................................................... 10
Investment (I) ....................................................................................................................... 10
Government Spending (G) ................................................................................................... 10
Graphing the Goods Market ................................................................................................ 11
Adjustment to Equilibrium ............................................................................................... 11
An Alternative way of Thinking about the Goods Market Equilibrium: Investment Equals
Saving. .................................................................................................................................. 12
Chapter 4- The Financial Market ............................................................................................. 14
The Demand for Money ....................................................................................................... 14
Semantic Traps ..................................................................................................................... 15
The Demand for Money ....................................................................................................... 15
Deriving the Demand for Money ......................................................................................... 15
Determining the Interest Rate: I .......................................................................................... 16
Monetary Policy and Open-Market Operations .................................................................. 18
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, Choosing Money or Choosing the Interest Rate .................................................................. 20
Chapter 6 – The Labour Market ............................................................................................... 22
The Large Flows of Workers................................................................................................. 23
Movements in Unemployment ............................................................................................ 23
Wage determination ............................................................................................................ 23
Wage, Prices and Unemployment – Wage Determination ................................................. 24
Price Determination ............................................................................................................. 24
Structural Unemployment ................................................................................................... 25
Graphing this mufucka: ........................................................................................................ 25
The Natural Rate of Employment: ....................................................................................... 26
Natural Output: .................................................................................................................... 26
Chapter 7 – Putting the Markets Together: the AD/AS Model ............................................... 27
Aggregate Supply: ................................................................................................................ 27
Aggregate Demand: ............................................................................................................. 28
Worked Example .................................................................................................................. 29
The Natural Rate of Unemployment and the Phillips Curve ............................................... 30
Inflation, Expected Inflation, and Unemployment .............................................................. 30
Mutations ............................................................................................................................. 31
The Formation of Expectations ............................................................................................ 34
The Phillips Curve and the Natural Rate of Unemployment ............................................... 34
A Summary and Warnings ................................................................................................... 35
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, Chapter 1 – A Tour of the World
Macroeconomics can be divided into growth theory and business cycle theory.
Growth theory involves the long term growth of the economy. This is determined by
the production capacity of the country.
Factors of production (labour, capital, technology and natural resources) influence
growth rate.
Macroeconomics 214 focuses on business cycle theory -short and medium run
fluctuations around the trend.
Research indicates that higher LT output growth per capita can be achieved by:
-Responsible economic policy implementation:
Controlled inflation
Controlled budget deficit
Encouraging high investment rates
Educated / healthy workforce
Openness to international trade
Strong financial sector
- Having good institutions:
Private property rights
Democratic institutions
Protection from rent-seeking
-Element of luck:
Neighbouring countries that grow fast
Having a coastline
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