Ecs 102-8 Economics yr1 Semester 1

ALL MULTIPLIERS AND INDEXES AND RATIOS:by

chapter/pg/section +Heading/Subheading

INDEXES:
CHAPTER 2: MEASURING PERFORMANCE OF ECONOMY:
1. TERM CPI Consumer Price Index:=115 % or 120% is an index of
the prices of a representative "basket " of consumer goods and
services: it thus represents the cost of the shopping basket of goods &
services of a typical RSA household.CPI is normally =115% or 132% or
so (not 6.2% like inflation:ie the change from one years to the next .)

RATES
CHAPTER 2: MEASURING PERFORMANCE OF ECONOMY:

2. term Inflation RATE: If you subtract Last years CPI from this years
cpi ,AND divide the quotient by last years cpi * 100 (the percentage
%)you get the inflation rate ie:127%-105% / 105
3. Economic Growth:= 3% or 0.8 %
annual rate of increase in aggregate production & income in the
economy.,to be qualified in real terms and per capita terms.:
a. 2003 –:ie,% by how much % 2003 is more than %2002.
i. First- Both years data convert to 2002 prices ie:REAL
GDP/GNI
ii. Second- (2003-2002 ) / 2002 * 100/1 = %change from
2002 prices=Economic Growth Measure

MULTIPLIERS:

CHAPTER 3: MONETARY SECTOR:

pg 364 t
CREDIT MULTIPLIER FROM BANKS / CREATING MONEY.

1. TERM CREDIT multiplier:=formula is 1/b R=D

a. b = % of deposits banks must keep in 'reserve bank' in RSA = 2.5%
b. R = b* D ( D = amount of a demand deposit invested in bank)
c. (deposit M=C+D)
d. (In RSA 1/b is 40) :
 e. If a bank increases the reserve it keeps at the reserve bank(R) ,by multiplying that
amount by the Cred. Multipl. you get the eventual amount of bank deposits , (D) ,that
can be created by that increasing the 'cash reserve'.
f. ALSO: If someone deposits money in a bank,you can ALSO call that amount "R" , and
by multiplying that amount by the Cred. Multipl. you get the eventual amount of bank
deposits,including the original one ,that can be created by that deposit eventually.This
works like that because only a certain percentage of each deposit can be lent out to
someone ,the rest must be banked by law in the reserve bank.Now if a bank lends a %
out of every deposit they receive ,those who lent this money pay others who re-deposit
that amount with other banks,which continues the cycle until no more bank deposits
can be created from one original deposit.
2. TERM :Cash reserves : IN SA 2.5% of Total Liabilities WITH RESERVE BANK at 0 interest ;amount
banks experience know have pay

Equations:
Chapter 3 :monetary sector:

1. Equation for M1 of money = M = C + D

2. Equation for demand for money: L=f(Yi) L-Liquidity preference/Y-National Income/i-Interest Rate
a. Graph of DEMAND FOR MONEY:
i. Active balance Curve:=f(Y) Income controlling factor:Vertical line,shift right income
increase/visaversa.
ii. Passive balance Curve:=f(i) negative slope reflects inverse relationship between interest rate
and Qty demanded of money. ie:cash held with purpose of investing if rates are high enough
will=0.At certain interest (i1)rate no funds will be demanded for spec.purposes.(i1)(this should
be on diagram where curve meets vertical line and interest is highest .

CHAPTER 6
MPC : c = C/Y = marginal propensity to consume.
Consumption function : C=('Cbar' autonomous consumption)+('cY' induced
consumption)

1) #@#=1/1-c : Multiplier for Keynesian macroeconomic model without

foreign sector or Government
2) formula for equilibrium level of income= y= 1/(1-c) *Abar or Cbar
+ I bar comes from y( 1-c) move. -----or Y = #@#A bar

Chapter 7

1) The old marginal propensity to consume is c with taxes included.The

slope of this curve is c(1-t) which is allways smaller than c.
2) The new marginal propensity to consume is c(1-t) with taxes
included.The slope of this curve is c(1-t) which is allways smaller than c.
3) The Multiplier without Taxes= #@#= 1/1-c
4) Multiplier with Taxes = #@#=1/1-c(1-t)
1) Equilibrium position of Tot.Income-Production/Tot.Spending-Demand
: Y0=Abar
:Income equilibrium =Tot. Autonomous Spending
1) Consumption Function: c=C/Y :
2) Equilibrium Income=Y0
3) To calc: EQUILIBRIUM level we start with
4) Equilibrium condition : Y=A(where eqilibrium is)
5) so :Y=C+I+G because (A=C+Ibar+Gbar)
6) and C=Cbar +cY)
7) So: Y=(Cbar+cY)+I+G

8) Thus:to solve above equation:

9) Y-cY=Cbar+Ibar+Gbar
10) so: Y(1-c)=Cbar+Ibar+Gbar
11) THUS: Y0=1/1-c(Cbar+Ibar +Gbar) : (19.4)
12) General formula can still be written: Y0=#@# (Abar) :(19.5)
13) Y=A(the equilibrium 45 deg line)********
14) so :Y=C+I+G because (A=C+Ibar+Gbar)*********
15) and :C=Cbar +cY (consumption curve equation)*******
16) So: Y=(Cbar+cY)+I+G
17) Where Y0 is equilibrium of A and Y
18) .Where:#@#=multiplier , Abar = total autonomous spending

TAX
1) Tax Rate: T=tY
2) Specific exercise:If the Gov. wishes to close the gap between full
employment (=Yf as an example) and lower levels by incresing spending –
they must work pout how much with above formula.=^Y=@^G
:so:^G=^Y/@. where multiplier will increase %income morethan
%spending

Exports&Imports
1) The Formula for Imports/Exports is: A = C+I+G+(X –Z).
2) term Net Exports usually referred to as =(X-Z)
1) from A = C + I to A = C + I + G.+(X-Z)
2) Y=A (equil. condition)
3) A=C+ Ibar+Gbar +(Xbar-Zbar) (aggregate spending where I,G,X,Z, are
autonomous)
4) C=Cbar +c(1-t)Y (consumption function)
5) SUBSTITUTING:
a) Y=A
b) Y=C+Ibar +Gbar+(Xbar-Zbar)
c) Y=(Cbar +cYd)+Ibar+Gbar+(Xbar-Zbar)
d) Y=(Cbar +c(1-t)Y))+Ibar+Gbar+(Xbar-Zbar)
e) Y-c(1-t)Y=(Cbar +Ibar+Gbar+(Xbar-Zbar))
f) Y=(1-c(1-t)) *(Cbar +Ibar +Gbar+(Xbar-Zbar))
g) Y0=1 /1-c(1-t) *****(Cbar+Ibar+Gbar+(Xbar-Zbar))