Formelsammlung Makro

Nominal GDP
pt: row vector with all prices xt. column vector of sold quantities

Real GDP
Base period which prices are held constant throughout the periods
 problem: growth rates need to be revised, make no sense over long horizons
 historical growth rates are adjusted downwards by a more modern one, old tend to over-
estimate (people substitute with cheaper goods)
 Chain indec procedure (DESTATIS) previous year as base->problems components do
not necessarily add up to full GDP

GDP deflator – P – current price level (nominal, in terms of goods)

reflects the price level over time

Paasche-Index (base period 1) – growth rate

Laspeyres Index (base period 2) ->indicates too much inflation

Base period =1 (no change)

Rate of inflation
Difference between price level Ps is rate of inflation (price increase)

The short Run

GOODS MARKET (Nominal) Chapter2
Variables
Exogenous: T, G -> fiscal policy + Investment

GDP
I= fixed investments
G=gov spending, not incl.:transfers,interest
payment on gov.debt
Y(total income) =GDP=output=production =Z

Consumption
Behavioural assumption – positive relation C(Yd)
c0: autonomous consumption
This parameter might change with institutional settings (credit
constraints) or consumer confidence in future income
0 < c1 < 1: marginal propensity to consume

Disposable Income
Y: total income (GDP)
T: “taxes” (tax payments - transfers to consumers)

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Private Saving

difference S= YD - C is (household) saving (or dissaving)

T-G = public saving, S private saving

Equilibrium (demand Z substituted by Y)

Y= Z or I=S Demand equals production but demand depends on production/income
production (GDP/ y) = demand (Z)
modified by expected inflation and risk premia

Equilibrium Output

Graphic illustration

Change in autonomous spending

Investment
Behavioural assumption

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 Model assumptions: no inventories so
IS Relation

Investment = private + public saving

Real interest rate rt (relevant for I

rather than it)

Expected rate of inflation

Small rates (approximation):

Expected inflation positive -> real interest rate lower than nominal interest rate

Relation: riskless = risky bonds (so that both are equally attractive)
p= probability to default not
pay back debt,
x risk premium, i nominal
interest rate
risk neutral (assumption), if risk aversion x should be larger
x compensates the risk, investor receives on top of interest rate

FINANCIAL MARKET Chapter 3+4

Key variable for equilibrium: real interest rate (in terms of currency) -> monetary policy by
central bank

Financial products
 states/municipalities & firms -> Securities -> bonds (debt) + interest (coupon),
 central bank (currency: coins, bills)
 commercial banks (checkable deposits); credit cards, PayPal
Assumption constant P (price level, as short run)

Nominal demand for money Md L liquidity preference

Behavioural equation
P.Y = Nominal Income
the equation assumes proportional effects of an increase in Y or P

more real income (Y↑ "): ↑ transactions and thus ↑ demand for cash
price level (P↑ "): need for “larger” banknotes

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interest rate (i ↑): higher opportunity cost of cash (foregone interest!)
Real demand

Y constant,
Different i ↔

Equilibrium LM
Money demand = supply

Gold standard = money supply is set first, i adjust until equilibrium is reached

Varying Y & constant Ms -> different i that ensures equilibrium (LM)

Monetary Policy
Price change

Real Money supply LM shifts down

Liquidity Trap / Lower zero bound

i >0, monetary policy ineffective , indifference to hold money or bonds

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 folie 13 absurt short
Story

Commercial banks and money creation