Economics 231

Chapters 7 – 12

Need to Know

 

GDP

          What is it?

          How is it measured?

          Who (Agency) compiles/publishes GDP and related account data?

          Generally, what is included in GDP?  What is excluded?

                   Two approaches

                             Spending sectors—what each includes

                             Income generated—resource classes, returns

          Be able to add up GDP--given the components (+ distractions)

          Be able to add up National Income given the components

          Distinguish between gross and net measures (investment)

          Distinguish between final and intermediate transactions

          Distinguish between/identify stock variables v flow variables

          Know distinction between nominal and real variables

          Be able to convert nominal values to real (given price index)

          Note:  You should review Exercises on course homepage dealing with

           Investment?  Does this go into GDP?  Adding-Conceptually,

           National Income-Practice Calculations, Converting Current to Constant

 

Growth and Instability

          How to measure economic growth

                   (Again, convert nominal/current $ to real/constant $)

          Unemployment

                   Defining, measuring unemployment

                   Labor force—who are in it, who are not?

                   Different types of unemployment

                             characteristics, causes, cures of each type

                   Costs of unemployment

          Inflation

                   Defining, measuring inflation

                   Interpreting an index number

                   Base period (use, value)

                   Effects/impact of inflation

Note:  Study Exercise “Inflation/Unemployment”

 

 

Basic Macro Model and Components

          Concept of two-sector, three-sector Keynesian models, etc.

          The consumption function—concept and graphics

                    movements along v shifts in the function

                   autonomous consumption

                   APC versus MPC

                   relationship between consumption function

     and saving function.  e.g., if C = a + bY

     then S = ????    Graphics, as well—Be able

     to measure saving on a consumption function

                   Note:  Make sure you work through “The Consumption

                        Function” under Exercises on course homepage.  You also

                        should look at Quick Quiz 9.2 in text.

          Investment Demand (recall/review components of GPDI)

                   The investment function

                             relationship between I and i      

                             other determinants of investment (curve shifters)

                   (Check text Quick Quiz 9.5)

 

          Equilibrium Income for Basic Two-Sector Keynesian Model

                   Concept/Graphics of Aggregate Supply in Model

                   Aggregate Expenditures—including graphics

                   Equilibrium income

                             concept, conditions, graphics of equilibrium income

                             the adjustment process—how? why?

                             investment: planned v realized/unintended

                             measuring graphically overproduction, inventory

                                      accumulations, saving versus investment, etc.

 

                   The investment multiplier

                             nature, cause of multiplier effect

                             determinant of multiplier magnitude

                             Be able to work multiplier problem

                                      (See Exercise “The Multiplier”)

 

Equilibrium Income for Basic Three-Sector Keynesian Model

                   Aggregate Supply Curve (Same as above)

                   Aggregate Expenditures—including graphics

                             Impact of taxes on consumption function

                             Adding govt. spending to AE curve (stacking)

                   Equilibrium income

                             concept, conditions, graphics of equilibrium

                             the adjustment process (movement toward Ye)

                             measuring graphically overproduction, inventory

                             accumulations, saving versus investment, etc.

                   Multipliers in a three-sector Keynesian model

 

Aggregate Demand-Aggregate Supply Model (AD-AS Model)

          Introducing the price level v real model above—implications

          AD curve v micro “demand for good X curve”

          Slope of the AD curve—why so-sloped?

          Determinants of aggregate demand (shifters)

          AS curve—contrasted to aggregate supply (45° line) in

                   Keynesian model (above)

          AS curve shifters (including supply side measures)

          Three regions (generally) of AS curve

          Policy implications (vis-à-vis the three regions)

          See “Aggregate Curves” Exercise on Course Homepage

 

Fiscal Policy

          See “Fiscal Policy” Note on Course Homepage