Reading 17: Aggregate Output, Prices, and Economic Growth Flashcards Preview

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Flashcards in Reading 17: Aggregate Output, Prices, and Economic Growth Deck (14)
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1
Q

GDP Equation

Aggregate Output, Prices and Economic Growth

17.1

A

C = Consumer spending on final goods and wervices

I = Gross private domestic investment, which includes business investment in capital goods (e.g. plant and equipment) and changes in inventory (inventory investment)

G = Government spending on final goods and services

X = Exports

M = Imports

2
Q

Domestic Private Saving

Aggregate Output, Prices and Economic Growth

17.2

A

C = Consumer spending on final goods and wervices

I = Gross private domestic investment, which includes business investment in capital goods (e.g. plant and equipment) and changes in inventory (inventory investment)

G = Government spending on final goods and services

X = Exports

M = Imports

Domestic private saving is used or absorbed in one of three ways: investment spending, financing government deficits, and building up financial claims against overseas economies [positive trade blance, (X-M > 0)].

If there is a trade deficit, then domestic private saving is being supplemented by inflows of foreign saving and overseas economies are building up financial claims against the domestic economy.

3
Q

Nominal GDP

Aggregate Output, Prices and Economic Growth

17.x

A

Also,

Real GDPt = PB x Qt

where:

PB = Prices in the base year

4
Q

GDP Deflator

Aggregate Output, Prices and Economic Growth

17.x

A
5
Q

Quantity Theory of Money

Aggregate Output, Prices and Economic Growth

17.x

A

M = nominal money supply

P = the price level

V = velocity of money

Y = real income/ expenditure

If velocity is assumed to be constant, then the quantity theory of money equation implies that the money supply determines the nominal value of output (PY).

Can be rewritten as:

M/P = (M/P)D = kY

6
Q

Equilibrium in Money Market

Aggregate Output, Prices and Economic Growth

17.x

A
7
Q

Classical Model of Aggregate Supply

Aggregate Output, Prices and Economic Growth

17.x

A

Where K bar is the fixed amount of captial and L bar is the available labor supply.

8
Q

Basic Production Function

Aggregate Output, Prices and Economic Growth

17.x

A

A represents techological knowledge (scale factor).

Y = aggregate output

L = Quantity of labor

K = capital

9
Q

Growth in Potential GDP

Aggregate Output, Prices and Economic Growth

17.x

A

The rate of growth of potential output equals growth in technology plus the weighted average growth rate of labor and capital.

WL and WC are the relative shares of capital and labor in national income. The capital share is the sum of corporate profits, net interest income, net rental income, and depreciation divided by GDP.

10
Q

Growth in Per Capita Potential GDP

Aggregate Output, Prices and Economic Growth

17.x

A
11
Q

TFP Growth

(Total Factor Productivity)

Aggregate Output, Prices and Economic Growth

17.x

A
12
Q

Labor Productivity

Aggregate Output, Prices and Economic Growth

17.x

A
13
Q

Productivity From Production Function

Aggregate Output, Prices and Economic Growth

17.x

A

Divide production function by 1/L

14
Q

Potential GDP and Potential Growth Rate

Aggregate Output, Prices and Economic Growth

17.x

A