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Summary for the course ''Macroeconomics 1'. This summary was written in order to study for the midterm as well as for the final. Everything you need to know is available in this summary.
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,Macro Economics
Chapter 1
Paul vs. Paul https://www.youtube.com/watch?v=jEmKIRqz9AI
- small vs. large economy ron paul vs krugman
- you can’t leave the government out.
- inflation if theft
- people can’t keep up with inflation
- Milton Friedman
- Federal reserve: making monetary decisions in the US
- remove taxes
- Ron hates the federal reserve
Macroeconomics: studies the economy as a whole, micro economics foundation
Economic models: simplification of the complex reality
- assumptions, possibilities and limitations
Aggregated: economy as a whole
General equilibrium: when all markets are simultaneously in equilibrium
Endogenous: variable determined inside the model
- price, supply, demand
Exogenous: variable is determined outside the model, given.
- income, taste/preferences, number of buyers, wealth P of related goods, Y
Q = a + bY Q endogenous and Y exogenous
Nominal variables: expressed as an amount
Real Variables: corrected for price changes
Market clearing: assumption that the price can be found where D and S intersect.
Flexible prices: long run, production capacity fully utilized and low unemployment.
Sticky prices: short run, production capacity not fully utilized 🡪 recession unemployment.
Closed economy: no foreign trade, capital flows or labour flows.
Small open economy: import and export, exchange rate
2
,Chapter 2
Income = Expenditure because expenditure of the buyer equals the income of the seller
sum of all expenditure = value of total production.
GDP: gross domestic product (total income / total expenditure) = the same
1. Y=C I G NX
2. Value of production – value of raw material
3. All production factors
Durable goods: furniture cards
Non-durable goods: food
Semi-durable goods: clothing
Services: haircut, theatre
Government purchases do not include transfer payments (social security, pension)
Because these are not expenditures on goods and services
The sale of used goods is not included as part of GDP, because GDP measures current things.
The sale of inventory goods is not included as part of GDP, because
Incomes earned by production factors:
- wages
- proprietors income
- rental, interest
- corporate profits
- depreciation
- indirect taxes minus subsidies
Critical remarks on GDP
- it does not measure what citizens earn
- black economy, unpaid work are not considered
- it does not measure the change in natural capital (rip tree’s)
- wellbeing is not included
Stock: quantity at a given point
Flow: quantity measured per unit of time
Intermediate goods: halffabricaat
Imputed value: estimated value of a product that isn’t being sold on the market
-imputed rent: home owners who don’t rent but still benefit home things.
Imputed values are not made into practise
GNI: gross national product / income, total income earned by citezens of a country, within and
outside national border.
National income / Net National product: GNI - depreciation
3
, Nominal GDP: measures GDP on the basis of current prices
(P x Q) x all goods
Real GDP: measures GDP on the basis of constant prices (prices of a certain base year)
(P of base year x Q of actual year) x all goods
Changes nominal GDP: price changes, changes in quantity
Changes real GDP: only changes in quantity
Economics growth = real GDP
The GDP-deflator: nominal GDP / real GDP (nieuw-oud/oud)
CPI: illustrates the development of the cost of living. Basket of household products
Q of base year x P of actual year / P and Q base
year
Criticism CPI, overstate inflation:
- Consumers can switch to other products that are not in the basket
- New products, real value of money increases but CPI doesn’t
- Quality improvement is not measured
GDP consist of:
- Consumption
- Investment (gross capital formation)
- Net exports
If a country has high consumption-% the import is high and visa versa
GDP focusses only on domestically, whereas CPI also involves import and export
Employed: Paid job (also part time)
Unemployed: no job, but looking
Labour force: employed + unemployed
Not in labour force: not employed and also no looking (students, retirees)
Unemployment rate: % of labour force that is unemployed
Participation rate: % of adult population that is in the labour force (18-65 age)
4
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