What is the expenditure model?
A model that helps calculate the GDP of a country, (C+I+G+ (X-M).
How to calculate CPI?
CPI = (Cost of market basket in year/ cost of market basket in base year (usually 100)) x 100
How do you find Real income?
Nominal income/ CPI (in hundreds)
How do you calculate the GDP deflator?
(Nominal GDP/ Real GDP) x 100
How to calculate the Labour force participation rate?
(Labour force/labour force population) x 100
How to calculate the unemployment rate?
(Unemployment in labour force/labour force) x 100
What are the 4 shift factors of aggregate demand, and briefly explain?
Consumer spending: How households spend and save
Investment spending: investing in projects where profit is expected
Government spending: More government spending increases output
Net exports: Foreign income/exchange rates.
What are positive demand shocks and negative demand shocks?
Positive demand shocks are shifts in the AD that move it right, then, in order to balance, SRAS must go left to return it to LRAS
Negative demand shocks shift the AD to the left; to balance, SRAS must go right to return to LRAS.
What do the Aggregate demand curve have as X and Y axes?
The X-axis is the aggregate price level, and the Y-axis is the real GDP
What is a recessionary gap?
The unemployment rate above the natural unemployment rate occurs right before an economic expansion
What is an inflationary gap?
The unemployment rate below the natural unemployment rate occurs right before an economic recession
How to calculate Output Gap
(actual output - potential output/potential output) x 100
