basic study notes on fundamental macroeconomics

1、Chapter1 Macroeconomics Measurement1. GDP and GNPGDP = C + I + G + ( X M )GNP = GDP + NR2. NI and DINI = GDP + NR CC IBT = GNP CC IBTDI = NI + TR + INT RE Tp Tc INF = C + PS3. Investment and SavingInvestment = Saving + Taxes Government Outlays4. Price IndexPaasche IndexContinuous changed PIUnderestimate real inflation rate as it based on the current-year quantity setLaspeyres IndexFixed PIOverestimate real inflation rate as it based on base-year quantity setIPD (Implicit Price Deflator)IPD = Nom

2、inal GDP / Real GDP = ( Qit*Pit ) / ( Qit*Pio ) (Paasche Index)SAAR% SAAR = Four-times Multiple of ( Xi / Xi-1 ) 1 100Expectations HypothesisSquare (1 + r2) = (1 + r1) (1 + Er1)Purchasing Power1 + Rreal = (1 + Rnominal) / (1 + Rinflation)Real Exchange Rateereal = enominal ( P / P foreign )%ereal = %enominal + %P - %P foreignCPI and PPIConsumers Price Index and Products Price Index are all fixed weighted index (Laspeyres)Business CyclesTroughExpansionPeak Recession Trough Leading Indicators Avera

3、ge weekly hours, manufacturing Average weekly initial claims for unemployment insurance Manufacturers new orders in 1987 dollars, consumer goods and materials industries Vendor performance, slower deliveries diffusion index Contracts and orders for plant and equipment, 1987 dollars New private housing units authorized by local building permits Change in manufacturers unfilled orders in 1987 dollars, durable goods industries Change in sensitive materials prices Stock prices, S&P 500 Money supply,

4、 M2 in 1987 dollars University of Michigan Index of Consumer ExpectationsCoincident Indicators Employees on non-agricultural payrolls Personal income less transfer payments in constant dollars Industrial production index Manufacturing and trade sales in 1987 dollarsLagging Indicators Average duration of unemployment in weeks Ratio of manufacturing and trade inventories to sales (in 1987 dollars) Percentage change in index of labor cost per unit of output Average prime interest rate charged by ba

5、nks Commercial and industrial loans outstanding in 1987 dollars Ratio, consumer installment credit outstanding to personal income Percentage change in Consumer Price Index for servicesChapter 2 Growth, Productivity and Long-run Equilibrium1. Production Function Y = A F( K, N )2. Elasticity of K and N3. Labor Productivity Growth = Elasticity of Capital Capital Deepening + Total Factor Productivity Growth4. Per-unit Cost of Capital and Real Wage5. Long-run EquilibriumLabor Eq. in labor market does

6、 not imply zero unemployment Natural rate of unemployment is around 5% in USSaving-Investment MarketPS + GS = I + NFISavings depends on DIFuture income and taxWealth Real interest rate ( positive slope )Investment depends on Productivity of capitalCurrent and future incomeReal interest rate ( negative slope )Government deficit Reduce GS Rise interest rate Crowds out some business investment ( reduce I ) induce higher foreign investment ( increase NFI )Money and Prices Functions of money are stor

7、e of value, unit of account and medium of exchangeQuantity Theory of MoneyMV = PY %M + %V = %P + %Y V Velocity of Money Recurrent Y the Quantity at Long-run Eq. M Money Supply P Current PriceForeign SectorAs we have ereal = enominal ( P / P foreign )PPP Purchasing Power Parity%e real = 0 ( real exchange rate is expected to be unchanged )%enominal = %P foreign - %PIRP Interest Rate Parity1 + i = ( 1 +iforeign) ( enominal / eexpected )i = i foreign - eexp / eChapter 3 Understanding Short-Term Fluc

8、tuations1. Basic descriptions and difference between Classical Macroeconomics and Keynesian Macroeconomics When quantity supplied ( production ) quantity demanded ( expenditure ) SHORT-TERM How to solve ?Price Change ClassicalQuantity Change Keynesian (not suitable for perishable goods)2.Aggregate Demand (Planned Expenditure) GDP = PAD = YD = C + I + G + NX Ys total output Yd total planned expenditure Y total income Yd = Ys Economy is in Eq. Inventory neither accumulate nor depleted Economy neither expands nor contracts 3. PAD Yd = planned C + planned I + planned G + planned NXConsumption Function Factors effect consumption: Y (income), MPC (marginal propensity to consumption) and other factors Consumption Function: C = Cd ( Y T, R )Investment Function Factors influence the investment Optimism and pessimism of business expectation New technology Interest rate ( R ) in short-run investment is decreasing function of R Depreciation ( Y ) Changes in sales ( Y )Gove

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