Basic Formulas and characteristics for Macro and Micro economics

Macroeconomics Lists You Should Remember:

• Conditions for Perfect Competition:
  1. Many producers none of whom has a large market share
  2. Standardized good (otherwise → monopolistic competition)
  3. Free entry - exit in the long-run
• Barriers that guarantee the monopolistic condition of a firm:
  1. Control over a scarce resource or input
  2. Increasing returns to scale (-ATC as output increases)
  3. Technology superiority
  4. Network externalities
  5. Government barriers (patents, copyrights)
• NB. Same factors for oligopolies but in a less strong way

Government can:

• Prevent monopoly (non-natural)
• Deal with it (natural) = - Public ownership
• - Regulation (by putting P = min ATC)

Tools for Monopolistic Perfect Price Discrimination:

• Advance purchase restrictions
• Volume discounts
• Two-part tariffs

• Factors that make it difficult for an oligopoly to coordinate on high P:
  1. Less concentration (greater number of oligopolists)
  2. Complex products and pricing schemes
  3. Differences in interests
  4. Bargaining power of buyers

- Illegal cartels

- Price war

• U-6 takes in account:
  • Unemployment
  • Underemployment
  • Discouraged workers
  • Marginally attached workers

- Unemployment rate can over or underestimate the real unemployed

• What can bring W > We:
  1. Minimum wages
  2. Efficiency wages
  3. Labor unions
  4. Government policies (unemployed helps)
  5. Mismatches between employed and employees

What can change the natural unemployment:

• Changes in labor force characteristics
• Changes in labor market institutions
• Changes in government policies

Election costs imposed by high inflation:

• Menu costs
• Unit of account costs
• Shoe-leather costs
• Discourages people from entering in long-term contracts

Remember: i measures the opportunity cost of investment. The higher it is, the higher the O.C. for I (I ↓ if C ↓ I)

Demand for loanable funds shifters:

• Changes in perceived business opportunities
• Changes in government borrowing (crowding out when economy is not depressed)

Supply for loanable funds shifters:

• Changes in private savings behavior
• Changes in net capital inflow (IM - X)

I has been driven by:

• Changes in gov. policies
• Changes in tech. innovation
• Changing in expectations about future inflation, which shift both S and D

The Fisher Effect:

The expected real interest rate is unaffected by changes in expected future inflation

(if S and D for loanable funds change accordingly, growing in the same percentage of the inflation rate)

The financial system's tasks:

1. Reducing transactions costs
2. Reducing risk
3. Providing liquidity

Types of financial assets:

• Bonds
• Loans
• Stocks

• MPC = ΔConsumer Spending / ΔDisposable Income
• Total increase in real GDP from a $x billion raise in I:
  • 1 / 1 - MPC x $ billion (ΔY = 1 / 1 - MPC ΔAAS where ΔY = multiplier ΔAAS)
• ΔC = MPC x ΔYo (change in consumer spending)
• CF = C = a + MPC x ΔYo
• AE Planned = C + I Planned (a + MPC x ΔYo + I Planned)
  • GDP = AE Planned + I Unplanned
  • - GDP > AE Planned if positive I Unplanned
  • - GDP < AE Planned if negative I Unplanned (economy in equilibrium when no I Unplanned)
• Output Gap = Y - Yp / Yp x 100 (can be negative, positive or = 0)
  • Bigger deficit or surplus in expansionary fiscal policy
  • Deficit or surplus in contractionary fiscal policy
• Budget Balance = S Gov = T - G - TR