Macroeconomics — Cheatsheets
GDP measurement approaches
| Approach | Method |
|---|
|---|---|
| Expenditure | C + I + G + NX (consumption + investment + government spending + net exports) |
|---|---|
| Income | Sum of wages + profits + rent + interest earned in production |
| Output/value-added | Sum of value added at each production stage across sectors |
Nominal vs. real GDP
| Property | Nominal GDP | Real GDP |
|---|
|---|---|---|
| Prices used | Current prices | Constant, base-year prices |
|---|---|---|
| Reflects | Price changes + output changes | Output changes only |
| Standard growth measure | No | Yes |
Inflation types
| Type | Cause | AD-AS mechanism | Policy response |
|---|
|---|---|---|---|
| Demand-pull | AD grows faster than capacity | AD shifts outward | Demand-reducing monetary/fiscal policy |
|---|---|---|---|
| Cost-push | Rising input costs | AS shifts inward | Harder — can coincide with falling output (stagflation) |
Unemployment types
| Type | Cause | Responds to |
|---|
|---|---|---|
| Frictional | Workers between jobs / new entrants searching | Time (self-resolving) |
|---|---|---|
| Structural | Skills/location mismatch | Retraining, education |
| Cyclical | Economic downturn, weak demand | Demand-stimulating policy |
Business cycle phases
| Phase | GDP | Unemployment |
|---|
|---|---|---|
| Expansion | Rising | Falling |
|---|---|---|
| Peak | High point | Low point |
| Contraction/Recession | Falling (2+ consecutive quarters) | Rising |
| Trough | Low point | High point |
Fiscal vs. monetary policy
| Property | Fiscal policy | Monetary policy |
|---|
|---|---|---|
| Controlled by | Government (spending/taxation) | Central bank (interest rates/money supply) |
|---|---|---|
| Speed | Slower (legislative/budget process) | Faster (committee decision) |
| Key risk | Crowding out, political constraints | — |
| Expansionary tool | ↑ spending / ↓ taxes | ↓ interest rates |
| Contractionary tool | ↓ spending / ↑ taxes | ↑ interest rates |
(needs verification — recheck against current source: RBI policy rates and specific tool settings are revised periodically.)
Key terms
| Term | Meaning |
|---|
|---|---|
| Multiplier effect | Initial spending amplified through rounds of re-spending |
|---|---|
| Phillips Curve | Short-run inverse relationship between inflation and unemployment |
| Crowding out | Government borrowing raising rates, discouraging private investment |
| Central bank independence | Insulating monetary policy from short-term political pressure |