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