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Macro Formulas 1st Partial 20-21

This document provides formulas and definitions for key macroeconomic variables including GDP, inflation, unemployment, interest rates, and the Phillips Curve. It defines GDP in terms of expenditures, value added, and income. It also defines the GDP deflator, CPI, inflation rates, unemployment, participation and employment rates. The goods market section covers domestic demand, the consumption function, autonomous spending, and equilibrium conditions. The financial market section defines the money multiplier and supply multiplier. The IS-LM model defines the IS and LM curves. Other sections cover the wage-setting curve, price-setting curve, natural rate of unemployment, and different versions of the Phillips Curve. Contact information is provided for questions.

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0% found this document useful (0 votes)
26 views10 pages

Macro Formulas 1st Partial 20-21

This document provides formulas and definitions for key macroeconomic variables including GDP, inflation, unemployment, interest rates, and the Phillips Curve. It defines GDP in terms of expenditures, value added, and income. It also defines the GDP deflator, CPI, inflation rates, unemployment, participation and employment rates. The goods market section covers domestic demand, the consumption function, autonomous spending, and equilibrium conditions. The financial market section defines the money multiplier and supply multiplier. The IS-LM model defines the IS and LM curves. Other sections cover the wage-setting curve, price-setting curve, natural rate of unemployment, and different versions of the Phillips Curve. Contact information is provided for questions.

Uploaded by

caldato.greta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FORMULAS

MACROECONOMICS
(FIRST PARTIAL)
EDITION A.A. 2020 - 2021

By Mario D. Russo, Matteo Giugovaz,


Margherita Sponza, Maria Mazza
Review by Federico Rovida
This handout has been written by students with no intention to substitute the University official
materials. Its purpose is to be an instrument useful to the exam preparation, but it does not give a
total knowledge about the program of the course it is related to, as the materials of the university
website or professors.

MACRO VARIABLES
GDP (GROSS DOMESTIC PRODUCT):
1) EXPENDITURE SIDE: final goods and servcies + exported intermediate goods at current prices

2) SUM OF VALUE ADDED: value of intermediate goods used by each form (“value-added” to the economy by
each firm), as VAoutput – VAintermediate goods

3) INCOME SIDE: sum of incomes produced à labor income/Wages (W) + capital income/Profits (𝜋) + tax
income/Taxes (T) (+ rent income)

NOMINAL GDP:

REAL GDP:

GDP DEFLATOR:

CONSUMER PRICE INDEX (CPI):


∑#$%& 𝑃!" ∗ 𝑄!"
𝐶𝑃𝐼! = 100 ∗ #
∑$%& 𝑃'" ∗ 𝑄!"
INFLATION RATE:
1) Computed with GDP inflator:

2) With CPI:
𝐼𝑃𝐶$ − 𝐼𝑃𝐶$
𝜋!"# =
𝐼𝑃𝐶$%&
3) With GROWTH RATE:
π = g €( − g (
Note that pCPI can differ from p

UNEMPLOYMENT RATE:

With “Ut” = unemployed in year t and “Lt” = total labor force

PARTICIPATION RATE:

With “𝑃𝑂𝑃 >15” = total working-age population 𝑡

EMPLOYMENT RATE:

With “Nt” = employment rate at 𝑡

THE GOODS MARKET


DOMESTIC DEMAND OF GOODS IN A CLOSED ECONOMY:
CONSUMPTION FUNCTION:

AUTONOMOUS SPENDING:
𝐴 = 𝑐! − 𝑐" 𝑇 + 𝐼 + 𝐺

MULTIPLIER OF STANDARD DEMAND:

FIRST EQUILIBRIUM CONDITION (closed economy):

PRIVATE SAVINGS:

𝑆( = 𝐼 + 𝐺 − 𝑇
PUBLIC SAVINGS:

SECOND EQUILIBRIUM CONDITION (closed economy):

THE FINANCIAL MARKET


DEMAND FOR HIGH-POWERED MONEY:

EQUILIBRIUM CONDITION OF FINANCIAL MARKETS (HS = HD):


1. 𝐻 = [𝑐 + 𝜃(1 − 𝑐)] ∗ €𝑌𝐿(𝑖)
2. 𝐻 = 𝐶𝐼# + 𝑅# with 𝐶𝐼! = currency demand and 𝑅! = reserves demand
$
3. €𝑌𝐿(𝑖) = %&'(")%)
MONEY MULTIPLIER:
1
𝑚) =
𝑐 + 𝜃(1 − 𝑐)
SUPPLY MULTIPLIER:
𝐻
𝑀* =
𝑐 + 𝜃(1 − 𝑐)
COEFFICIENT c AND 𝜃:
𝐶𝐼𝑑
𝐶=
𝐶𝐼𝑑 + 𝐷𝑑

IS-LM MODEL
CONSUMPTION FUNCTION:

INVESTMENT FUNCTION:

IS FUNCTION:

With 𝑑" = sensitivity of investments to income; 𝑑# = sensitivity of investment to the interest rate

MONEY DEMAND FUNCTION:

With 𝑓" = sensitivity of money demand to income; 𝑓# = sensitivity of money demand to investment
LM FUNCTION:

MONETARY POLICY MULTIPLIER (standard case):


−𝑑.
𝑚,- =
1 − 𝑐" − 𝑑"
FISCAL POLICY MULTIPLIER (standard case):
1
𝑚,/ =
1 − 𝑐" − 𝑑"
FISCAL POLICY MULTIPLIER (exogenous M):
1
𝑚,/ =
𝑓
1 − 𝑐" − 𝑑" + 𝑑. "
𝑓 .

MONETARY POLICY MULTIPLIER (exogenous M):


1
𝑚,- =
𝑓.
(1 − 𝑐" − 𝑑" ) + 𝑓"
𝑑.

THE FINANCIAL MARKET (2)


RELATION BETWEEN NOMINAL AND REAL INTEREST RATE:
(1 + 𝑖0 )𝑃0
1 + 𝑟0 = 1
𝑃0&"
With 𝑖0 = nominal interest rate; 𝑟0 = real interest rate.

EXPECTED INFLATION:
1
1
𝑃0&" − 𝑃0
𝜋0&" =
𝑃0
RISK PREMIUM:
(1 + 𝑖)𝑃
𝑥=
1−𝑃
THE LABOR MARKET
WAGE-SETTING CURVE (WS):

Where “𝑃𝑒” = expected price; “z” = catchall variable (employment protection and other)

PRICE SETTING CURVE (PS):

Where “A” = marginal productivity of labor and “𝜇” = markup level in the products market

NATURAL LEVEL OF UNEMPLOYMENT AS A FUNCTION OF Yn

THE PHILIPS CURVE


PHILIPS CURVE:

Where

1) Original (𝖯 = 0)

2) Modified / adaptive expectations (0< 𝖯 <1)

3) Accelerated /perfectly adapted / computed with regard to inflation (𝜃 =1)


NATURAL UNEMPLOYMENT RATE:

INFLATION VARIATION (if accepted):

PHILLIPS CURVE WITH WAGE INDEXATION:

http://bit.ly/Peer2Peer_Bocconi
http://bit.ly/Blab_Bocconi
https://www.blabbocconi.it/dispense/
@blabbocconi
IN COLLABORATION WITH:
For doubts or suggestions on the handout:

MATTEO GIUGOVAZ MARIA MAZZA FEDERICO ROVIDA


+39 3473900812 +39 3487319848 +39 3451234479

@Matteo_giugovaz @Mariamazza_ @Fede.rovida

For info about our teaching division:

LORENZO CUNDARI MARTINA GARAVAGLIA


+39 3920281217 +39 3496362050

@Lore.cundari_ @Martina.garavaglia

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