291 midterm 2 Flashcards
in a small open economy how much is the foreign lending to a small open economy?
Difference horizontally between the saving curve and investment curve below the national equilibrium.
how much is lending from the small economy to foriegn market?
difference between s and i curves above equilibrium
What is absorption?
Cd+Id+G
What does net exports of 4 billion imply?
the country is lending 4 billion to foriegners
What are reasons for slowed productivity growth in 1973 onwards?
- statistics error - not counted in GDP is increase in qulaity of products ie computers which does not properly measure increase in living.
- Increase in oil prices - inputs to business more expensive therefore less output
- emphasis on health, safety and environment has lead to less output due to more red tape, increase costs etc
4 IT - learning time to warm up to new technology temporarily decreased output
What is steady state?
when yt, ct and kt do not change over time. Ie the economies output, consumption and capital stock per worker are constant. They do not change over time.
What is the equation for investment in a steady state?
It = (n+d)K where d is depreciation and n is net investment or pop growth
What is the equation for net investment?
(1+n)Kt - Kt = nK where n is equal to investment for the year
What is steady state consumption?
Consumption is found by Ct=yt-It. Afterwards we put the steady state investment equation into I to get Ct=Yt-(n+d)Kt
How do you find the per worker C/Y/I?
divide by N where N is number of workers
What is steady state consumption per worker?
c = Af(k) - (n+d)k where c is consumption per worker, A is productivity, kis capital per worker n is net investment and d is depreciation. Af(k) could also be y.
What is the per worker production function?
yt=Atf(k)
What is the Golden rule steady state?
That is the capital labour ratio that leaves the largest amount of per worker consumption
What is investment in steady state?
(n+d)Kt where n is net investment, d is depreciation and K is capital and t is the time (year). Note saving in a steady state is equal to Investment
On a graph, which point is the steady state point if there is a production function line, a savings rate*production line and an investment line?
It will be at the point where Investment and savings*production lines meet. If the capital labour ratio is at a different point than the where savings and investment meet it will move towards that poin until it reaches it.
In the steady state on a graph, what is the consumption?
At the capital labour ratio output where investment meets savings the consumption is the distance between that point and the production function.
Why is efforts to move the saving rate to the golden rule level of output often resisted?
The living standards drop for a short time while the spending on investment takes effect. Short term elections for politicians make it difficult to to seeem like the right thing is happening when living standards drop
state if it will make output fall, rise or stay the same all else equal after an increase in:
savings rate, population growth and productivity
savings rate: rise because the higher savings allows for more investment/capital
pop growth: fall, more output must be used to equip new workers with capital
productivity:rise, derp
What 2 ways does endogenous model describe growth?
Through growth of human capital and that human capital will increase as capital increases therefore mpk does not decrease. It also describes growth through technological breakthroughs via R&D
What are 3 functions of money?
Unit of account, medium of exchange, store of value
What is M1?
currency + chequeable deposits
What is M2?
M1 + personal savings, + non personal demand and notice deposits
What is M3?
M2 +non personal term deposits and foreign currency deposits of residents
What is the money demand function?
Md = P*L(Y, i) where Md is nominal money demanded, P is the price level, Y is real income/output, i is real interest.
What is Md/P?
Real money demand, aka the amount of money demanded in terms of the goods in can purchase.
Why does an increase in expected inflation cause an decrease in demand for money?
higher expected inflation means a higher return on alternate assets compared to money therefore people want to rid themselves of cashola and buy stocks or sumthin similar
How do you measure velocity?
GDP/Nominal money stock aka PY/M
Md - M is what?
Excess demand for money
NMd - NM is what?
excess demand for non monetary assets
(md-m)+(NMd-NM) =?
0 when md-m = 0. this is equilibrium in the asset market
excess demand for money plus excess demand for non monetary assets is equal to what?
0 if md-m = 0
How do you calculate the price level?
P = M/L(Y, e+pie)
What is the quantity theory of money?
The theory of money that assumes velocity is constant which implies that money demand is proportional to real income and unaffected by interest rate
vat is money demand function?
Md = P * L(Y,i)
What is the bank rate?
interest charged by central bank
What is the overnight rate
The rate charged on very short term loans to banks
how to calculate inflation rate if money is growing by 10% output is growing by 3% and elasticity of money demand 2/3?
10% - 2/3(3%) = 8% which is the inflation
How do you calculate inflation given elasticity of miney demand?
growth rate of money% - elasticity of demand times the growth rate of output
