Can I bring notes into the ECON1002 final exam?

The ECON1002 course materials this cheatsheet was built from do not confirm the permitted materials for this semester's final exam at University of Sydney. Check the exam instructions on the LMS before the exam; use this sheet to revise and self-test.

What does the ECON1002 final assess?

It covers all material, with more focus on Weeks 8–13. Section A has 20 multiple-choice questions worth 40 marks and Section B is analytical/essay work worth 60 marks.

How do I calculate the four-sector multiplier?

Find the PAE slope c(1−t)−m, then calculate 1 divided by 1 minus that slope.

How does an output gap affect inflation?

A positive gap pushes inflation up, a negative gap pulls inflation down, and a zero gap leaves inflation unchanged.

Does a higher saving rate create permanent per-worker growth in Solow-Swan?

No. It raises the steady-state level of capital and income per worker and creates transitional growth, but long-run per-worker growth returns to zero unless total factor productivity rises.

What does purchasing power parity predict?

With the exchange rate measured as foreign currency per domestic dollar, percentage change in e equals foreign inflation minus domestic inflation.

What should I check before relying on this revision sheet for exam logistics?

Check the current exam instructions on the LMS because the course materials held for this offering do not confirm what materials may be used.

ECON1002 Cheatsheet · Introductory Macroeconomics · USyd

ECON1002

Introductory Macroeconomics

University of Sydney · Economics · Semester 2, 2026

Full guide + ask Sia
about ECON1002

SIDE 1/2 DEFINITIONS · FORMULAS · DECISION RULES · DIAGRAMSEXAM REVISION SHEETFinal 50% · all material · more focus Weeks 8–13

01 · Exam map course.json · brief

81525FINAL 50%

Assessment	Wt	Format / scope
Early Feedback Task	2%	Online quiz; Week 1
Online quizzes (4 × 2%)	8%	10 MCQ each
Tutorial participation + team quizzes + presentation	15%	In tutorial
In-Semester Test	25%	60 min; Weeks 1–6
Final exam	50%	2 h + 10 min reading; 20 MCQ = 40 marks; analytical/essay = 60; all material, more focus Weeks 8–13

Permitted materials: not confirmed for this offering in the course materials we hold — check the exam instructions on the LMS. Source: BRIEF.md; course.json.

Answer architecture: number-work must end in meaning; diagrams must narrate the adjustment path.

02 · GDP: three equal cuts CH 1

ExpenditureY = C + I + G + X − M = C + I + G + NX

IncomeY = compensation + gross operating surplus + net indirect taxes

Value addedY = Σ(revenue − intermediate inputs)

Final goods count; intermediate goods do not. Imports are subtracted because C, I and G already include them, while GDP measures domestic production. The three approaches must reconcile.

Distinction	Rule
Nominal	Σ(current P × current Q)
Real	Σ(base-year P × current Q)
Deflator	(Nominal/Real) × 100
GNI	GDP + net factor income from non-residents

Welfare limit: GDP omits leisure, household and volunteer work, environmental damage and distribution. It can rise after destructive rebuilding. Real GDP per person tracks material living standards, not complete welfare.

Check Real GDP fixes prices; CPI fixes quantities. A negative NX belongs inside brackets when solving a missing component.

03 · Prices & real rates CH 2

Price arithmeticInflationₜ = (CPIₜ − CPIₜ₋₁)/CPIₜ₋₁ × 100
Item contribution = expenditure share × its % price change
Real value = nominal ÷ (CPI/100)

Fisheri ≈ r + π ⇒ r ≈ i − π
Exact: (1+i) = (1+r)(1+π)

If the prompt says…	Do this
Fixed household basket	CPI / Laspeyres
All domestic output	GDP deflator
Protect future payment	Index it
Compare purchasing power	Deflate it
Unexpected π rises	Real return falls; borrowers gain, lenders lose

CPI bias: fixed quantities miss substitution toward cheaper goods and quality improvement, so CPI overstates the true cost-of-living rise. At the zero lower bound, deflation makes r = i − π rise.

Inflation cost	Mechanism
Menu / shoe-leather	Repricing and economising on cash
Redistribution	Unexpected π moves real wealth between creditors and debtors
Bracket creep	Nominal income enters higher non-indexed tax brackets

04 · Saving, wealth & investment CH 3

IdentitiesS = Y − C − G
S = (Y − T − C) + (T − G)
closed economy: S = I

Flow: per period	Stock: at a point
saving, income, deficit, hires, investment	wealth, capital, public debt, bank balance

Firm rule: invest while marginal benefit (VMPK/MPK value) ≥ marginal cost (real interest rate). Higher r rejects more projects.

Budget deficit → public saving falls → national saving shifts left → real rate rises → private investment is crowded out.

Check T > G is positive public saving; T < G is a deficit. Always test that private + public = national saving.

05 · Labour decision rules CH 4

HiringMPL = Δoutput from next worker
VMP = MPL × output price
Hire through the last worker with VMP ≥ wage.

Labour-force ratesLF = employed + unemployed
u = U/LF × 100
Participation = LF/working-age population × 100

Type	Cause / status
Frictional	Normal search and matching
Structural	Skills/location mismatch
Cyclical	Weak demand in downturn
Natural u*	Frictional + structural; cyclical = 0

Discouraged workers leave LF; measured u may fall without job creation. Underemployment is also missed by the headline rate.

A floor above equilibrium binds: employment is labour demanded (short side); unemployment is supply minus demand, not the fall in employment.

06 · Output gaps & Okun CH 5

Gapgap = 100 × (Y − Y*)/Y*
Okun: gap = −β(u − u*), β ≈ 2 in Australia

Gap	Resources	Direction
Y < Y*	Slack	u > u*; inflation tends to fall
Y > Y*	Over-use	u < u*; inflation tends to rise

The minus sign is the mark: output and unemployment deviations move in opposite directions.

Technical recession: two consecutive quarters of negative real-GDP growth. A growth recession can have positive but below-trend growth. On a log-GDP plot, slope ≈ growth rate.

Definition check Potential output Y* is output at normal resource use, not a ceiling. A growth recession can still have positive GDP growth: it is below trend, so slack rises. Peaks and troughs are turning points; cycles are irregular.

07 · Keynesian short-run model CH 6

Build planned expenditurePAE = C + Iᴾ + G + NX
C = C̄ + c(Y − T)
T = T̄ + tY; M = mY

Slope, multiplier, equilibriumslope = c(1−t) − m
K = 1/[1 − slope]
Y = autonomous × K
ΔY = K × Δautonomous

Autonomous spending shifts PAE vertically; the horizontal output change is K times the shift.

Position	Inventory signal	Firm response
Y > PAE	Unplanned accumulation	Cut Y
Y < PAE	Unplanned rundown	Raise Y
Y = PAE	Planned = produced	Equilibrium

Routine Substitute functions → collect intercept and slope → form K → solve Y → interpret. Taxes and imports are leakages: higher t or m lowers K.

08 · Fiscal policy CH 7

MultipliersKᴳ = 1/[1 − c(1−t)]
Kᵀ = −c/[1 − c(1−t)]
Balanced budget: Kᴮᴮ = Kᴳ + Kᵀ

For matched ΔG = ΔT, first compute Δautonomous = ΔG − cΔT, then multiply. Spending enters demand fully; only the consumed share of a tax change does.

Concept	Decision rule
Automatic stabilisers	Downturn: taxes fall, transfers rise without new legislation
Gini	A ÷ (A + B); 0 equality, 1 inequality
Debt sustainability	Worsens when real r > growth g, especially with primary deficit
Crowding out	Borrowing raises r and lowers private I

Policy size Translate the gap into required ΔY. Divide by the relevant multiplier to obtain the autonomous change; then select G or T and retain the tax multiplier’s negative sign.

Debt test A balanced primary budget may not stabilise debt. If real r > growth g, interest compounds faster than output; a primary deficit makes the debt ratio rise still faster.

09 · Money, bonds & policy CH 8

MoneyMV = PY
With V,Y fixed in long run: %ΔM ≈ %ΔP
Money multiplier = 1/rr
ΔM = (1/rr) × Δreserves

Object	Rule
M1	Currency + current deposits
M3	M1 + other bank deposits
Asset purchase	Reserves ↑; cash rate ↓
Asset sale	Reserves ↓; cash rate ↑
Bond	P = payoff/(1+i); i↑ ⇒ P↓

Policy reaction functionr = 0.01 + 0.5(output gap) + 0.5(π − πᵀ)
nominal i = r + actual π

10 · AD-AS: draw, shift, finish CH 9

AD slopes down in (π,Y): π↑ → policy r↑ → PAE↓ → Y↓. Higher G or a higher inflation target shifts AD right; the reverse shifts it left. LRAS is vertical at Y*.

Inflation inertiaπₜ = πₜ₋₁ + output-gap effect + supply shock
gap + ⇒ Δπ > 0; gap − ⇒ Δπ < 0

11 · AD-AS judgement paths CH 9

Demand-pull: short-run output rises above potential; the positive gap raises inflation until output returns to Y* at higher inflation.

Shock	Short run	Adjustment / finish
AD right	Y↑, π↑; positive gap	SRAS up; Y→Y*, π permanently higher
AD left	Y↓, π↓; negative gap	SRAS down; Y→Y*, π lower
Adverse supply	Y↓, π↑	Stagflation dilemma; state policy response
Credible lower target	AD left	Anchored expectations reduce output cost of disinflation

Diagram marks Label axes π and Y, AD/SRAS/LRAS, Y*, initial and new equilibria, arrows, gap, adjustment, final point. Never stop at the short-run point.

12 · Growth accounting CH 10

Production & decompositionY = AKᵃL¹⁻ᵃ; y = Akᵃ
ΔY/Y = ΔA/A + aΔK/K + (1−a)ΔL/L
%Δy = %ΔA + a·%Δk

Phrase	Meaning
Constant returns	Scale K and L together → Y scales equally
Diminishing MP	Raise one input holding the other fixed → smaller additions
Solow residual	ΔA/A: output growth unexplained by measured K,L
Rule of 70	Doubling time ≈ 70/growth %

13 · Solow-Swan CH 11

Dynamic systemsaving per worker = θy = θAkᵃ
break-even = (d+n)k
Δk = θAkᵃ − (d+n)k

Steady stateθA(k*)ᵃ = (d+n)k*
k* = [θA/(d+n)]¹⁄⁽¹⁻ᵃ⁾
y* = A(k*)ᵃ

k* is stable: left of it saving exceeds break-even so k rises; right of it saving falls short so k falls.

Change	Diagram	Steady-state effect
θ↑	Saving curve up	k, y ↑; long-run per-worker growth returns to 0
n↑	Break-even steeper	k, y ↓
A↑	Production and saving up	k, y ↑; sustained growth needs continuing A growth

Conditional convergence: economies with the same θ, n, d and A converge to the same steady state; different fundamentals imply different destinations.

14 · Open-economy core CH 12

Exchange rates & accountsrer = eP/Pᶠ (e = foreign per domestic)
%Δe = %ΔPᶠ − %ΔP (PPP)
CAB + KAB = 0 (floating)
NS − I = NX; NS + KI = I

Trigger	Result
e↑	Nominal appreciation
rer↓	Real depreciation: competitiveness ↑, X↑, M↓
Domestic inflation > foreign	PPP predicts e↓
Domestic policy rate ↑	Capital inflow; A$ demand ↑; appreciation
NS < I	NX < 0, financed by net capital inflow

ECON1002

Introductory Macroeconomics · Worked self-test drills

University of Sydney · answer paths · judgement cards · classic traps

Full guide + ask Sia
about ECON1002

SIDE 2/2 FIVE WORKED DRILLS · IF X → DO Y · TRAPS · EXAM-MORNING PLANSELF-TEST BEFORE READINGShow setup · signs · units · one-sentence meaning

15 · Method chooser CH 1–12

Use the prompt’s output type to select a calculation, a diagram path, or a conditional judgement.

If you see…	Start with…
Current P,Q versus base year	Nominal/real GDP table; deflator last
Basket share + price change	share × % change
u versus u*	gap = −β(u−u*)
C,T,Iᴾ,G,X,M	Collect PAE intercept and slope
θ,d,n,A,a	θAkᵃ = (d+n)k
e,P,Pᶠ	rer = eP/Pᶠ
Inflation + output shock	AD-AS; state short and long run

16 · Worked drill 1: GDP CH 1 WE

Given: C=620, G=180, NX=−10; compensation=540, operating surplus=300, net indirect taxes=60. Find I.

Answer pathIncome GDP = 540+300+60 = 900
I = Y − (C+G+NX)
= 900 − [620+180+(−10)]
= 900 − 790 = 110

Trap NX is already −10. Keeping brackets shows that subtracting the negative adds 10; treating NX as +10 would give 90.

Fast reconciliation tests

Expenditure, income and value added must return the same Y.
Inventory change belongs in I; transfer payments are not G purchases.
GDP is domestic production; GNI follows resident income.

27 · Exam-morning plan brief · guide

Final recall loop: write the relationship, draw the mechanism, then name the sign trap.

17 · Price & saving micro-drills CH 2–3

Prompt	Setup	Answer
Electricity weight 8%; price ↑50%	0.08×50%	+4 percentage points
$200 loan; real return 8%; π=5%	200×1.08×1.05	$226.80 exact; $226 approx.
Y=1000,C=620,G=180,T=200	S=Y−C−G; private=Y−T−C; public=T−G	S=200; 180; +20; closed I=200

Trap set Use decimal share 0.08, not 8. Exact Fisher compounds. Saving is a flow; wealth is a stock. Private + public must equal national.

One-line check	Correct response
Inflation above expectation	Real lender return falls.
Deflate nominal N at CPI p	N ÷ (p/100), not N×p.
Government deficit widens	Public and national saving fall.
Closed economy	S=I is an accounting identity.

18 · Worked drill 2: labour CH 4 WE

Part A. Output by 0–5 baristas: 0, 6, 11, 15, 18, 20 coffees/hour; price $4; wage $10/hour.

Worker	MPL	VMP = MPL×4	Hire?
1	6	24	Yes
2	5	20	Yes
3	4	16	Yes
4	3	12	Yes
5	2	8	No

Hire 4: the fifth worker’s VMP is below the wage.

Part B. Nᵈ=360−3w, Nˢ=200+w; minimum w=50.

Answer pathFree market: 360−3w=200+w
w*=40; N*=240
At 50: Nᵈ=210; Nˢ=250
Employment = 210; unemployment = 250−210 = 40
Employment falls 240→210 = 30.

Unemployment created (40) differs from the fall in employment (30).

Price-change drill If output price falls to $3, VMP becomes 18, 15, 12, 9, 6. Hiring exactly 3 requires worker 3 to clear the wage and worker 4 to fail: $9 < wage ≤ $12. Equality hires the worker, so include $12 but exclude $9.

19 · Worked drill 3: Keynesian CH 6 WE

Given: C=40+0.8(Y−T), T=50, Iᴾ=250, G=350, X=60, M=0.1Y. Find K, autonomous expenditure, equilibrium Y and ΔG to close a 40 gap.

1 · Build PAEPAE = 40+0.8(Y−50)+250+350+60−0.1Y
= 660 + 0.7Y

2 · MultiplierK = 1/(1−0.7) = 3.33

3 · EquilibriumY = 660+0.7Y ⇒ 0.3Y=660
Y = 660×3.33 = 2200

4 · Close gapΔG = target ΔY/K = 40/3.33 = 12

The computation is one chain: intercept + slope → multiplier → equilibrium → policy size.

Classic error Using 1/(1−c)=5 ignores import leakage. The multiplier uses the complete PAE slope, not the MPC alone.

20 · Fiscal judgement cards CH 7

If you see X…	Do Y…
Equal ΔG and ΔT	Do not cancel. Compute ΔG−cΔT, then ×K.
c=.8, K=3.33, ΔG=ΔT=80	Δautonomous=80−64=16; ΔY=16×3.33=53.3.
Recession, no new law	Name automatic stabilisers: taxes↓, transfers↑.
Debt question	Compare real r with output growth g and note primary balance.
Lorenz curve bows farther	Area A and Gini rise: inequality increases.

Output-gap sign sprint

Given	Write	Conclude
gap +4, β=2	4=−2(u−u*)	u is 2 points below u*
Y<Y*	gap negative	Slack; u>u*; inflation tends to fall
Y>Y*	gap positive	Over-use; u<u*; inflation tends to rise

Multiplier check Dollar-for-dollar, |Kᴳ| > |Kᵀ|: G enters PAE fully, while a tax change affects demand only through the consumed share c. For equal ΔG=ΔT, compute Δautonomous=(1−c)ΔG, so output rises; do not cancel the two policy changes.

21 · Monetary policy drill card CH 8 WE

Given rule: r=0.01+0.5(output gap)+0.5(π−πᵀ); gap=+1%=0.01, π=6%=0.06, target=2.5%=0.025.

Substitute in decimalsr=.01+.5(.01)+.5(.06−.025)
=.01+.005+.0175=.0325=3.25%
i=r+actual π=3.25%+6%=9.25%

The inflation-gap term uses π−πᵀ; conversion to nominal uses actual π.

Policy prompt	Chain
RBA buys assets	Exchange-settlement funds ↑ → cash rate ↓ → spending ↑
Cash rate rises	Bond yield ↑ → existing bond price ↓
Domestic rate rises	A$ assets more attractive → A$ demand ↑ → e↑
M rises, V and Y fixed	P rises proportionally in long run

22 · Growth rapid tests CH 10 WE

Given	Path	Result
a=1/3; k growth 6%; A unchanged	%Δy=a×%Δk	2%
Add TFP growth 1.5%	1.5%+(1/3×6%)	3.5%
g=2%	70/2	doubling ≈35 years
Observed Y growth less weighted K,L contributions	Residual	TFP growth

Trap Capital deepening is weighted by a; TFP adds one-for-one. Constant returns scales all inputs together; diminishing marginal product changes one with the other fixed.

Concavity of y=Akᵃ: equal additions to capital deliver smaller output gains at higher k.

Aggregate growth ΔY/Y = ΔA/A + a(ΔK/K) + (1−a)(ΔL/L). To solve for TFP, move both share-weighted input-growth terms to the other side; ΔA/A is the Solow residual.

23 · Worked drill 4: Solow-Swan CH 11 WE

Given: y=Ak⁰·⁵, A=1, θ=.3, d=.05, n=.05. Find k*, y*; then raise θ to .4.

Original steady state.3k⁰·⁵=(.05+.05)k=.10k
Divide by k⁰·⁵: .3=.10k⁰·⁵
k⁰·⁵=3 ⇒ k*=9
y*=1×9⁰·⁵=3

Higher saving rate.4k⁰·⁵=.10k ⇒ k⁰·⁵=4
k*=16; y*=4
Long-run growth of y per worker = 0 at the new steady state.

A higher θ raises the saving curve and steady-state levels; it does not remove diminishing returns.

Classic trap	Repair
Use dk only	Break-even is (d+n)k: equip new workers too.
Set y=(d+n)k	Set saving θy equal to break-even.
Report k* but not y*	Substitute k* back into y=Akᵃ.
Claim θ raises permanent growth	Say level rises; transition growth ends at new k*.

Direction check: n↑ steepens break-even and lowers k*. A↑ lifts production and saving; k* and y* rise. Below k*, Δk>0; above k*, Δk<0.

24 · AD-AS narration drill CH 9 WE

Shock: G↑ shifts AD right.
Short run: Y>Y* and π↑; expansionary gap.
Mechanism: positive gap raises expected/actual inflation; SRAS drifts up.
Long run: Y returns to Y*; inflation remains higher.

Six-mark habit Allocate words to shift, short-run point, gap, inflation inertia, self-correction and final comparison. A labelled diagram alone does not state the mechanism.

Solow judgement	Required phrase
θ↑	Higher level; only transitional growth
n↑	Steeper break-even; lower k* and y*
A rises once	Curves and levels rise
A keeps growing	Sustained output-per-worker growth
Poorer economy catches up	Only conditionally: same θ,n,d,A

25 · Worked drill 5: open economy CH 12 WE

(a) P=12, Pᶠ=30, e=2 foreign per domestic.

rer=eP/Pᶠ=(2×12)/30=0.8

(b) Domestic inflation 7%; foreign inflation 3%.

%Δe=%ΔPᶠ−%ΔP=3%−7%=−4%
Domestic currency depreciates about 4%.

(c) Budget deficit falls $12bn, so Δ(T−G)=+12; private saving +8; exports +5; imports +9. Find ΔI.

Use changes in NS−I=NX[8+12]−ΔI = 5−9 = −4
20−ΔI=−4 ⇒ ΔI=+24bn

Tighter domestic monetary policy attracts capital and appreciates the dollar when e is foreign currency per A$.

Sign discipline With this e convention, appreciation is e↑. A smaller budget deficit means public saving T−G rises. Calculate ΔNX as ΔX−ΔM.

26 · Trap matrix all chapters

Wrong move	Correct move
Count intermediate + final output	Count final only or sum value added.
Use nominal rate as real	Subtract π; compound if precision asked.
Call discouraged worker unemployed	Not in LF once no longer searching.
Drop minus in Okun	Positive gap means u below u*.
Use c alone as PAE slope	Use c(1−t)−m.
Cancel equal G and T	Tax effect carries weight c.
Money multiplier × rr	Multiply reserves by 1/rr.
Stop AD-AS at short run	Move SRAS and finish at Y*.
Forget a in growth accounting	Weight capital growth by a.
Higher θ ⇒ permanent growth	Higher level; long-run growth needs A.
PPP sign reversed	Foreign π minus domestic π.

External-account judgements

If…	Then…
CAB<0 under a float	KAB>0: net capital inflow finances it.
NS−I<0	NX<0; investment exceeds saving.
Budget deficit widens, other terms fixed	NS falls; external deficit widens.
Overvalued fixed rate	Excess supply drains reserves; defence requires tighter policy.
Fixed rate + free capital	No independent monetary policy.