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This is a post to just revise over the different formulas for elasticity.

Elasticity of deman = change in quantity demanded / change in price

Elastic = Ed > 1

Unit Elastic = Ed = 1

Inelastic = Ed < 1

Perfect elasticity has a horizontal demand curve which means that any price increase will lead to zero sales because no one will buy the good if it increases in price. Perfect inelasticity revolves around a vertical demand curve meaning that at any price range the amount of demanded will not change since people are willing to pay whatever is charged for the product.

Elasticity of supply:

Es = Change in quantity supplied / Change in price

Cross price Elasticity:

Ec = Change in quanity demanded for good one / Change in price for good 2

Income Elasticity:

Ei = Change in quantity demanded / Change in income

Currently I’m going over competitive firms, and monopolies in Micro and I have to admit that it isn’t the easiest of concepts to learn but I’m confident that I should be able to get it down in the two weeks that I have left before the AP exam. The thing is that I’m a bit discouraged because I wasn’t too sure how I would do on the Ap exam, and for some reason I have this mentality that I have to pass because I would be only student of my economics teacher to have passed the microeconomics exam so far, up to date not one person has been able to pass the microeconomics exam. If I don’t pass I won’t be pissed off, but let’s just say that I won’t be in the happiest of moods if you get my drift.

Suffice to say I want glory.

As i sit here in the library and type away this post at school I’m very mad because our school system limits collaboration, they actively try and limit team work and I’m not sure why. People need to come in and get a computer if they would like one but once they have a computer they are not allowed to get up, leave, talk to one another, it’s like a prison with your mouth sown shut.. you simply can’t work with other students. It’s infuriates me that I cannot get up as I please, it hurts me to see that people cannot sit next to a friend who is doing the same homework, or they can’t talk about concepts.. why? I’m constantly trying to find out why we as students who are told that we should be creative, and we should be inspired be shut into a cold room with unecessary rules, and regulated topics. It’s stupid, it’s a stumbling stone on our way to higher learning, it’s school.

Problem #80:

According to the Keynesian model, an expansionary fiscal polcy would tend to cause which of the following changes in output and interest rates?

OUTPUT INTEREST RATES
A) Increase Increase
B) Increase Decrease
C) Decrease Increase
D) Decrease Decrease
E) No change Decrease

First let’s go over what Keynesian economist believe.. They believe that the government should regulate demand in times during a recession, they believe in shifting the aggregate demand curve or aggregate expenditures. We know that fiscal policy revolves around government spending, and expansionary means an increase, so more government spending which is a direct portion of GDP (Consumption + Investment + Government + (Net Exports)). We can automatically eliminate C, D, and E because they are all saying that Output decreases which is false due to the Aggregate demand curve shifting righward as government expenditures increase, and thus GDP increases which is directly related to output. So now we are left with A & B. First we’ll start with letter B which states that Output will increase and Interest rates will decrease. This is partially right because Output will increase but as government expenditures increase the government continues to borrow, and we know that from our Money Market graph that Ms (Money supply) is a vertical line, and Md (Money demand) intersects Ms at some point, as Md shifts upward more money is demanded, thus interest rates rise.

So the answer is A) Output increases, and Interest rates rise.

Problem #101 Macro Test 1990:

In one year, real gross national product fell by 3 percent, inflation rose to 10 percent, and unemployment rose to 11 percent. Which of the following may have caused these changes?

a) A decrese in the money sypply and a decrease in government spending.
b) A decrease in inflationary expecectations
c) An increase in investment in inventories
d) An increase in the money supply and an increase in government spending
e) An increase in inflationary expectation.

For this questions we can rule out letter A because a decrease in the money supply would cause interest rates to increase which would counteract inflation, and the decreased government spending would eliminate some demand pull inflation. We can rule out letter B because a decrease in inflationary expectation would cause an increase in Aggregate demand fueling growth, and businesses would then decide to pursue investment because a lower risk of inflation. For letter C I got a gut feeling, and I thought investment in invetories? wtf. Plus increased investment would cause Aggregate Supply to shift right therefor lowering price level, and thus inflation and in addition furthering GNP. Finally I ruled out letter D because an increase in the money supply would cause lower interest rates which in GDP, Investment in capital goods is the most sensitive to interest rates and therefor a lower interest rate would prompt expansionary monetary policy therefor boosting GNP, and with increased government spending GDP should also increase due to the multiplier of spending, along a shift in the AD curve rightward.

So we are left with E, which is “An increase in infaltionary expectations”.

An increase in inflationary expectations would prompt people to save or atleast put off consumption, business would not want to take the extra risk of investment, and businesses would not higher extra labor.

School life reall enrages me, I hate the fact that there are so many rules & regulation that dictate what I can and cannot due with own time… Stupid things like walking into a room right outside my classroom but then being told that I have to go around, through jammed halls. Upon asking why I’m told “Because it’s wrong”, and I ask “why?”, and i’m answered with a “Because it’s wrong”. I seem to have knack for starting trouble or arguing, so I persist and I’m told to not argue, blinking with a blank look on my face as if I was shot I turn and leave muttering to myself, and hopefully one day Karma will kick ass and seek out revenge for me.

Well I think I should start off with macroeconomics since that’s what I’m most familiar with.. I’ve been doing macroeconomics for a couple months and it seems to be my subject choice for studying. Eventually I’m going to have to start microeconomics but since macro has some of the same concepts of micro I think it doesn’t matter which one I start off with. The main differences between micro and macro is that micro focuses on the individual firm or industry while macro focuses on the economy on a whole so to add a little perspective micro deals with the individual spec of sand while macro deals with the entire beach.

You might have learned something from this post, we never cease to learn.