Chapter 4# Supply and Demand

Change in Demand is caused by:

Consumer income
Prices of related goods
Tastes
Expectations
Number of buyers
Change in Supply is caused by:
Input prices
Technology
Expectations
Number of sellers

Chapter 23# Building a Nationss Income

GDP(Y) = Consumption(C)+Investment(I)+Government Purchases(G) + Net Exports(NX)

Nominal GDPyear = Sum (Priceyear + Quantityi)
Real GDPyear = Sum (PriceBaseYear + Quantityi)
GDP Deflator20xx = ( Nominal GDP20xx / Real GDP20xx) X 100

Chapter 24# Measuring the cost of living

Consumer Price Index (CPI) = Sum( Pricei X Qunatityi )

Inflation Rate = ( (CPIyearX - CPIBaseYear ) / CPIBaseYear) X 100
Salaryyear2 = (Price level in year2 / Price level in year1) X Salaryyear1
Real Interest Rate = Nominal Interest Rate Inflation Rate
Chapter 25# Production and Growth

Productivity = Real GDP / Labor = Y / L (Output per worker)

Poor country starts here

Rich country Starts here

Encourage saving and investment to increase K/L.

Provide Public Education to increase H/L.
Control Population Growth to increase K/L.
Patent lawsor grants to increase A (technological advancments).

Chapter 26# Saving, Investment and Capital

Private Saving = Y T C
Public Saving = T G
National Saving = Public + Private = Y C G = I (Investment)
Budget Surplus = T G = Public Saving
Budget Deficit = G T = - (Public Saving)

Chapter 27# Basic tools of Finance

FV = PV/(1+r)N [Future Value = Present Value/(1+Interest Rate)years]
If PV > Cost of Action, Firm should take that action or vice-versa.
If a variable grows at rate x then it will become double in 70/x years.

Chapter 28# Un-Employment

3 Groups. (i) Employed (ii) Un-Employed (iii) Not in the labor force
Total Labor Force = Employed + Un-Emlpoyed
u-rate = ( # of un-employed / total labor force ) X 100
Labor force participation rate = (total labor force / total adult population) X 100
A rising u-rate gives the impression that the labor market is worsening, and it is.
A falling u-rate gives the impression that the labor market is improving, but it is not.
Chapter 29# The Monetry System

3 functions of money. (i) Medium of Exchange (ii) Unit of Account (iii) Store of Value
2 kinds of money
(i)Commodity money with intrinsic value (gold coins)
(ii) Fiat money without intrinsic value
Reserve Ratio (R) = Total Reserves/Total Deposits
Money Multiplier = 1/R
Chapter 30# Money Growth and Inflation
Value of Money = 1/Price Level

Nominal variables are measured in monetary units.

Real variables are measured in physical units.
Real Wage = Nominal Wage / Price Level
Classical Dichotomy : monetary developments affect nominal variables but not real
variables.
Monetary neutrality: the proposition that changes in the money supply do not affect
real variables

 Velocity X Money Supply = Nominal GDP

Velocity X Money Supply = Price Level X Real GDP
If real GDP is growing, then inflation rate < money growth rate.
Fisher Effect:
Nominal Interest Rate = Inflation rate + Real Interest Rate