Consumer price index (消费者价格指数): measures changes in the price level of a market basket of consumer goods and services purchased by households.
(Overestimate the true burden of inflation because it does not recognize consumers’ ability to substitute goods and services as price change. (选择题考过)）
Producer price index(生产者价格指数)：the average changes in prices received by domestic producers for their output.
GDP deflator=(Nominal GDP/Real GDP)*100
RGDP> NGDP: Deflation
Main Reasons for economic growth（常考，几乎选择题必考）
Higher level of education
Methods to improve Human Capital
Disposable income=personal income-tax
Consumption=autonomous consumption + derived consumption
autonomous consumption: consumption expenditure that occurs when income levels are zero.
derived consumption：Consumption for a factor of production or intermediate good occurs as a result of the consumption for another intermediate or final good.
Nominal interest rate-Inflation=Real interest rate(常考)
Three main theory
1. Monetarist(很少考)：increasing the money supply at a rate equal to the GDP increase rate.
2. Classical(比较常考，答题也有出，关键词：Government take no actions): emphasize economy is fairly stable（强调市场内在稳定），can cure the recession; and no government intervention(没有政府介入); Flexible market.
3. Keynesians(常考): emphasize that economy is unstable. (Sticky market); Recommand active government policy. (fiscal policy is more effective than monetary policy); Liquidity trap
Example for classical theory
When economy is in a Recession, there is a surplus of workers or inputs, the wage and the cost will decrease
AS curve will shift to the right for get equilibrium level. (没有政府介入，市场自动恢复)
Crowding out and Stagflation（常考）
Crowding out effect:通常指政府的开支增加导致的私人投资和消费减少。
通常思路是：GS（government spending）increase Demand for loanable fund increase real interest rate increase people tend to save money in the banks rather than use it to invest, so that investment and consumption decrease, AD shift to left.反之亦然。
逻辑是：When AD curve shift to right, price level increase
people are expecting a higher price level
so producers tend to save products rather than sell it since they are waiting for a higher price level which can make more profit for them.
1.People have ability to work but do not have job.
2.People who is finding new job.
2. FOUR kinds of unemployment；
1. Frictional unemployment:摩擦性失业，A person switches to a new job.可以理解为跳槽期间的空档时间。
2. Structural unemployment:结构性失业， A kind of skill is being replaced by machines, therefore there is no requirement for this kind of skill-worker anymore. (技术不再被市场需求)
3. Cyclical unemployment:周期性事业， A person was being unemployed since the economic change, such as recession or depression.
4. Seasonal unemployment:季节性失业，A person was unemployed since the seasonal change.
3. Dishonest workers: 不是失业人口却拿补助金的人。会导致unemployment rate 上升。
4. Natural unemployment rate：around 5%, only in structural unemployment and frictional unemployment.
5. Discourage workers: People who do not want to find job, and will not account for labor force.