This document provides a review of key concepts for an exam in macroeconomics, including: - Percentage change, types of economic functions, and logarithmic scales - GDP, GDP per capita, and the GDP deflator - How to calculate GDP using the expenditure approach - Recession, consumer price index (CPI), and differences between the GDP deflator and CPI - Calculating inflation rates using the GDP deflator and CPI

1. ECO 202
Macroeconomics
Exam 1 Review

2. Percentage
Change
new - old
x 100
=
old
(add %)

3. new - old
=
old
new _– old
=
old
old
new _–
1
= old

4. Type of Functions
Linear
Cyclical
Seasonal
Volatile
Exponential

5. Linear - Line

6. Cyclical - Cycle

7. Seasonal - Cycle
Jan
April
July
Oct

8. Volatile - Big Swings

9. Exponential
1,000,000
750,000
500,000
250,000
0

10. Log
Convert Exponential to Linear
1,000,000
100,000
10,000
1,000
100
10
1
Make the
scale
exponential

11. Chapter 23
GDP
GDP Per Capita
GDP Deflator

12. Chapter 23
Gross Domestic Product
abbreviation
definition
equation

13. GDP
Gross Domestic Product
The market value of all
final goods and services
produced in a country in
a given time

14. Market Value
What something
would sell for

16. All
Everything except...
Stuff you don’t sell

17. Final
Intermediate
Final
Avoid double-counting

18. Intermediate
Final

19. Goods and
Services

20. Goods
Services

21. Produced
New Stuff
Does not include
the sale of used
goods

22. Within a
Country

23. In a given
period of time
Year Y/Y
Quarter Q/Q
Annualized: Q x 4

24. How do you
calculate
GDP?
Equation

25. GDP =
C = Consumption
I = Investment
G = Government
X = Exports
M = Imports

26. GDP =
C + I + G + (X - M)

27. Consumption
Spending by
households on
goods and services,
except new housing

28. Investment
Spending on capital
equipment, inventories, and
structures, including new
housing

29. Government
Spending on goods
and services from
local, state, and
federal governments.

30. Net Exports
Exports minus
imports

31. GDP Per
Capita =
GDP
Population

32. GDP Per Capita
best measure of
relative economic
condition

33. GDP Deflator
measure of changes
in the price level
!
Base Year

34. GDP Deflator
deflates
price inflation

35. GDP Deflator
Nominal GDP
X 100
Real GDP

36. Inflation Rate
GDPD Year 2 - GDPD Year 1
GDPD Year 1
X 100
(add %)

37. GDP Inflation Rate
GDPD Year 2 - GDPD Year 1
GDPD Year 1
Year 1 = 240
276 - 240
Year 2 = 276
240
= 15%
36
240
X 100
X 100
X 100

38. Recession
Two consecutive
quarters of negative
GDP growth

39. Chapter 24
Consumer Price Index
CPI

40. CPI
a measure of the overall
cost of goods and
services bought by a
typical consumer

41. GDP Deflator
vs. CPI
GDP is everything produced
CPI is just what consumers
buy

42. Inflation and
GDP Deflator and CPI
Import inflation will affect
CPI but on GDP Deflator

43. CPI Steps
1. Fix the basket
2. Find the prices
3. Compute cost
4. Choose base year and compute index
5. Compute inflation rate

44. CPI
Price this year
X 100
Price in the
base year

45. CPI Inflation Rate
CPI Year 2 - CPI Year 1
X 100
CPI Year 1
Year 1 = 130
143 - 130
Year 2 = 143
130
= 10%
13
130
X 100
X 100

46. Problems with CPI
substitution bias
new goods
quality changes

47. What increased more:
Salary or CPI?
Year
1990
CPI
130
Salary
50,000
2014
225
100,000
% Change
73%
100%

48. What increased more:
Salary or CPI?
Year
1990
CPI
130
Salary
50,000
2014
225
75,000
% Change
73%
50%

49. What increased more:
Salary or CPI?
Year
1990
CPI
130
Salary
50,000
2014
225
86,538
% Change
73%
73%

50. If you loan some one
100 riyals for one year
and the inflation rate is
13 percent, how many
riyals should you ask for
in return?