ECO 3200

• In the long run, the capital stock and the level of technology is relatively fixed which means the supply of goods and services in the long run equal the potential output.
• In the short run, prices are relatively fixed and output is variable. Fluctuations in demand determine how much of the available capacity is used and thus the level of output and unemployment.
• The aggregate supply (AS) curve depicts, for each given price level, the quantity of output firms are willing to supply.
• The aggregate demand curve presents for each given price level the level of output at which the goods markets and money markets are in equilibrium.
• In the long run, the aggregate supply curve is vertical.
• In the long run, output is determined by aggregate supply alone and prices are determined by both aggregate supply and demand.
• High inflation rates are always due to rapid increases in the overall price level are always due to changes in aggregate demand.
• In the short run, the aggregate supply curve is flat.
• In the short run, output is determined by aggregate demand alone and prices are unaffected by the level of output.
• The growth rate of the economy is the rate at which the gross domestic product is increasing.
• The output gap measures the gap between actual output and the output the economy could produce at full employment given the existinf resources.
• Increases in inflation are positively related to the output gap.
• The production side of the economy transforms inputs, such as labor and capital, into output, GDP. Inputs such as labor and capital are called factors of production, and the payments made to factors, such as wages and interest payments, are called factor payments.
• Adding payments to domestically owned, foreign located factors of production and exclude factor payments made to foreign owners of US based production equals gross national product, or GNP.
• Net domestic product(NDP) is equal to GDP minus depreciation.
• The fundamental national income accounting identity equals Y=C+I+G+NX
• Transfer payments are not counted as part of GDP because transfers are not part of current production.
• Gross private domestic investment is considered as any current activity that increases the economy's ability to produce output in the future.
• Investment is usually considered expenses from a business, while consumption is expenses for households(except for new housing construction)
• Disposable income is equal to consumption plus savings.
• The government budget deficit is equal to government expenditures plus transfer payments minus tax revenues.
• Real GDP measures changes in physical output in the economy by valuing all goods produced in the economy.
• Nominal GDP measures the value of output in a given period in the prices of that period, or in current dollars.
• inflation is the rate of changes in prices, and the price level is the cumulation of past inflations.
• The GDP deflator is the ratio of nominal GDP in a given year to real GDP.
• The consumer price index(CPI) measures the cost of buying a fixed basket of goods and services representative of the purchases of consumers.
• The PPI(Producer Price Index) measures the cost of a given basket of goods but includes raw materials and semifinal goods.
• Long run behavior of the economy relates to growth theory
• Long run: capital and level of technology is fixed
• Fixed capital and technology determine the productive capacity of the economy
• In the long run, the supply equals potential output
• In the short run, fluctuations in demand determine how much of the available capacity is used, along with output and potential output
• Short run: prices are relatively fixed and output is variable
• In the long run, the aggregate supply curve is vertical
• The graph depicts that output is determined by aggregate supply alone and prices are determined by both aggregate supply and aggregate demand.
• The aggregate demand curve presents for each given price level, the level of output at which the goods market and money market are simultaneously in equilibrium.
• The aggregate supply curve depicts for each given price level, the quantity of output firms are willing to supply
• Very high inflation rates/rapid increases in the overall price level are always due to changes in aggregate demand
• In the short run, the aggregate supply curve curve is flat(The level of output does not affect prices in the short run)
• In the short tun, output is determined by aggregate demand alone ad prices are unaffected by level of output.