Formulas

Topic 1:

  • GNP = GDP + earning abroad - earnings from the foreigners here

  • NNP = GNP - depreciation

  • National income = NNP - indirect tax

  • Personal income = NI - corporate tax & undistributed profit - social security

  • GDP Expenditure approach:

    • Y= C + I + G + NX


Topic 2

  • Classical Aggregate function:

    • Y=f(K‾,N)Y=f\left(\overline{K},N\right)

      • Y=real output

      • k‾\overline{k} =fixed short-run capital stock


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  • Marginal Product of Labor (MPN)

    • measures the extra ouput generated by one additional unit of labor, given that the capital stock is fixed

    • MPN = labor demand


  • MC=WMPNMC=\frac{W}{MPN}

    • MC = marginal cost

    • W = wage

    • MPN = Marginal product of labor (marginal benefit)

  • P=WMPNP=\frac{W}{MPN}

    • P = price

  • WP=MPN\frac{W}{P}=MPN

    • real wage = w/p

  • Profit maxing

    • P = MR = MC


  • Labor Demand

    • ND = f(W/P)

  • Labor Supply

    • NS = g(W/P)

  • Shifter of the curve

    • increase in tech or capital stock

    • change in worker preference

      • exp: desire for more leisrue, leads to less labor supply)

    • change in population

  • Classical Aggregate Supplu

    • AS is vertical bc change in price level does not effect the production

          

Topic 3

  • The Quantity Theory of Money

    • it determines the price level

    • Fisher

      • MV=PY

        • money supply x how fast it circulate = total sales (price x quantity)

        • m=money supply

        • v = velocity of money (how many time the same dollar bill is spent a year)

        • M and P must change porportionally

    • Cambridge

      • M = MD=kPY

        • Money supply = Money demand =a constant x Price x Output

        • if k = 1/v

        • m= 1vPY\frac{1}{v}PY , which is mathematically identical as fisher’s equation

  • Classical AD curve

    • through using the equation to check each price level

    • Money supply determins price

    

  • Loanable funds (a fixed size pie)

    • S = I +(G-T)

    • Saving = investemnt + gov deficit

    • Crawding out: Loanable funds market will offset any single change in the economy

      • EXP: government spend more wont change the AD bc

        • GOv spending rises = interest rises = Investment decreases




Topic 4

  • Sollow Equation


    • Explaination

      • skαsk^{\alpha} = saving rate x output per effective worker

      • n = how fast the work force is growing

      • g = how fast the technology/knowledge is growing

      • depreciation