Micro-economics version 2.0
Hoofdstuk 1
Inflation rate: how fast prices are rising
Unemployment rate: the fraction of the labour force that is out of work
Real GDP: measures total income of everyone in the economy (adjusted for price level)
Recessions: periods during which real GDP falls
depressions: more severe recessions
deflation: periods of falling prices
Endogenous variables: variables that a model tries to explain
Exogenous variables: variables that a model takes as given
Market clearing models
all wages and prices are flexible short run
wages and prices are sticky long run
Microeconomics: study of how households and firms make decisions and how these
decision makers interact in the marketplace.
Hoofdstuk 2
GDP: gross domestic product: nations total income and total expenditure on its output of
goods and services.
no used goods
inventory not included ( producing inventory does, selling inventory doesn't)
only value of final goods
rent of houses and imputed value (schattingen) are in it
Real GDP: price levels of one year used to calculate
Nominal GDP
GDP deflator =
Real GDP
GDP:
1. final consumption expenditure (household: non durable, durable, semi-durable,
sercices) (non-profit institutions) (general government consumption )
2. gross capital formation: total investment. (gross fixed: business fixed, general
government fixed, fixed investment dwellings) (inventory fixed )
3. net exports
National income accounts identity: GDP = Y= C+I+G+NX
GNP: Gross national product: GDP + factor payments from abroad - factor payments to
abroad.
NNP:net national product: substract the depreciation of capital (GNP-depreciation)
CPI: Consumer price index: level of prices
current price X Q / 2012 price X Q
understates housing costs: excluding mortgage interest payments and council
taxes.
overstates inflation: fixed basket of goods, so no substitution possible.
, overstates inflation: no new goods accounted: consumers are better off because
more choice
overstates inflation: does not take quality change in account
CPI versus Deflator
GDP measures prices of all goods and services CPI only bought goods
GDP includes only domestically goods, CPI also goods bought from other countries
CPI: fixed basket of goods, GDP changes as the composition changes
Unemployment
Labour force: number employed + unemployed
Unemployment rate: unemployed / labour force
Labour-Force participation rate: labour force/ adult population
Number of unemployed
Unemployment rate= ∗100
La bour force
Labour Force
Labour−Force participation Rate= ∗100
Adult population
Hoofdstuk 3: National Income: where it comes from and where
it goes
Profit=Revenue− Labour Costs−Capital Costs
¿ PY −WL−RK
Marginal Product of Labour (MPL) → the extra amount of output the firm gets from
one extra unit of labour, holding the amount of capital fixed.
MPL=F ( K , L+1 )−F ( K , L )
Diminishing marginal product → holding the amount of capital fixed, the marginal
product of labour decreases as the amount of labour increases.
Δ profit= Δ Revenue− ΔCosts
¿ ( P∗MPL )−W
If the extra revenue (P * MPL) exceeds the wage W, an extra unit of labour increases
profit.
Therefore, the manager continues to take on labour until the next unit is no longer be
profitable - that is, until the MPL falls to the point where the extra revenue equals the
wage. The competitive firm's demand for labour is determined by: P * MPL = W
Marginal Product of Capital (MPK) → the amount of extra output the firms gets from
an extra unit of capital, holding the amount of labour constant:
MPK=F ( K + 1, L )−F ( K , L )
Δ profit= Δ Revenue− ΔCosts
¿ ( P∗MPK ) −R
, Economic profit → the income that remains after the firms have paid factors of
production.
Y =( MPL∗L )+ ( MPK∗K ) + Economic Profit
Euler's theorem which states that if the production function has constant
returns to scale then:
F ( K , L )=( MPK∗K )+( MPL∗L) because nothing is left afterwards
Accounting profit → Economic profit and return to capital are together because firm
owners and capital owners are the same people often.
Accounting Profit=Economic Profit+ ( MPK∗K )
Cobb-Douglas production function → F ( K , L )=A∗K α∗L1−α
Disposable income → the income after the payment of all taxes. This can be spent on
consumption and savings.
Marginal Propensity to Consume (MPC) → the amount by which consumption
changes when disposable income increases by one euro.
Interest rate → measures the cost of the funds used to finance investment. Nominal →
rate that is usually reported, this is what investors pay to borrow money. Real → nominal
interest rate corrected for the effects on inflations.
Private saving → Y - C - T Y=C+I+G
Public saving → T -G I=Y-C-G
S = private + public saving (Y -T - C) C = C (Y -T)
+ (T - G)
Hoofdstuk 1
Inflation rate: how fast prices are rising
Unemployment rate: the fraction of the labour force that is out of work
Real GDP: measures total income of everyone in the economy (adjusted for price level)
Recessions: periods during which real GDP falls
depressions: more severe recessions
deflation: periods of falling prices
Endogenous variables: variables that a model tries to explain
Exogenous variables: variables that a model takes as given
Market clearing models
all wages and prices are flexible short run
wages and prices are sticky long run
Microeconomics: study of how households and firms make decisions and how these
decision makers interact in the marketplace.
Hoofdstuk 2
GDP: gross domestic product: nations total income and total expenditure on its output of
goods and services.
no used goods
inventory not included ( producing inventory does, selling inventory doesn't)
only value of final goods
rent of houses and imputed value (schattingen) are in it
Real GDP: price levels of one year used to calculate
Nominal GDP
GDP deflator =
Real GDP
GDP:
1. final consumption expenditure (household: non durable, durable, semi-durable,
sercices) (non-profit institutions) (general government consumption )
2. gross capital formation: total investment. (gross fixed: business fixed, general
government fixed, fixed investment dwellings) (inventory fixed )
3. net exports
National income accounts identity: GDP = Y= C+I+G+NX
GNP: Gross national product: GDP + factor payments from abroad - factor payments to
abroad.
NNP:net national product: substract the depreciation of capital (GNP-depreciation)
CPI: Consumer price index: level of prices
current price X Q / 2012 price X Q
understates housing costs: excluding mortgage interest payments and council
taxes.
overstates inflation: fixed basket of goods, so no substitution possible.
, overstates inflation: no new goods accounted: consumers are better off because
more choice
overstates inflation: does not take quality change in account
CPI versus Deflator
GDP measures prices of all goods and services CPI only bought goods
GDP includes only domestically goods, CPI also goods bought from other countries
CPI: fixed basket of goods, GDP changes as the composition changes
Unemployment
Labour force: number employed + unemployed
Unemployment rate: unemployed / labour force
Labour-Force participation rate: labour force/ adult population
Number of unemployed
Unemployment rate= ∗100
La bour force
Labour Force
Labour−Force participation Rate= ∗100
Adult population
Hoofdstuk 3: National Income: where it comes from and where
it goes
Profit=Revenue− Labour Costs−Capital Costs
¿ PY −WL−RK
Marginal Product of Labour (MPL) → the extra amount of output the firm gets from
one extra unit of labour, holding the amount of capital fixed.
MPL=F ( K , L+1 )−F ( K , L )
Diminishing marginal product → holding the amount of capital fixed, the marginal
product of labour decreases as the amount of labour increases.
Δ profit= Δ Revenue− ΔCosts
¿ ( P∗MPL )−W
If the extra revenue (P * MPL) exceeds the wage W, an extra unit of labour increases
profit.
Therefore, the manager continues to take on labour until the next unit is no longer be
profitable - that is, until the MPL falls to the point where the extra revenue equals the
wage. The competitive firm's demand for labour is determined by: P * MPL = W
Marginal Product of Capital (MPK) → the amount of extra output the firms gets from
an extra unit of capital, holding the amount of labour constant:
MPK=F ( K + 1, L )−F ( K , L )
Δ profit= Δ Revenue− ΔCosts
¿ ( P∗MPK ) −R
, Economic profit → the income that remains after the firms have paid factors of
production.
Y =( MPL∗L )+ ( MPK∗K ) + Economic Profit
Euler's theorem which states that if the production function has constant
returns to scale then:
F ( K , L )=( MPK∗K )+( MPL∗L) because nothing is left afterwards
Accounting profit → Economic profit and return to capital are together because firm
owners and capital owners are the same people often.
Accounting Profit=Economic Profit+ ( MPK∗K )
Cobb-Douglas production function → F ( K , L )=A∗K α∗L1−α
Disposable income → the income after the payment of all taxes. This can be spent on
consumption and savings.
Marginal Propensity to Consume (MPC) → the amount by which consumption
changes when disposable income increases by one euro.
Interest rate → measures the cost of the funds used to finance investment. Nominal →
rate that is usually reported, this is what investors pay to borrow money. Real → nominal
interest rate corrected for the effects on inflations.
Private saving → Y - C - T Y=C+I+G
Public saving → T -G I=Y-C-G
S = private + public saving (Y -T - C) C = C (Y -T)
+ (T - G)
