Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Finals Freshman Spring > Econ 116 > Flashcards

Econ 116 Flashcards

1
Q

GDP: Formula

A

Quantities produced * prices that year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

GDP: not counted

A
  1. Underground economy
  2. Produced at home
  3. Unsold things count as inventory
  4. Used goods
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

GDP: how to find housing

A

impute rents from people who own houses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Real vs. Nominal GDP

A

Real has a reference year. Only use prices for that reference year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

GNP Formula

A

GNP = GDP + Net factor payments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

GDP Deflator Formula

A

Deflator = Nominal GDP/Real GDP

cyPcyQ/byPcyQ

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

CPI Formula

A

CPI = byQcyP/byQbyP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

why does CPI overestimate inflation?

A
  1. New Products

2. Quality improvements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

National Income

A

C+I+G+NX

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

National Savings

A

Y-C-G

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Income Identity

A

S=I

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Y function

A

Y = F(K, L)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

wage identity

A

W/P = MPL

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

rental rate identity

A

R/P = MPK

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

MPL (CRS)

A

(1 − α)Y /L

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

MPK (CRS)

A

aY/K

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

share going to workers

A

= (1 − α)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

share going to capital

A

a

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Cobb-Douglass form

A

F = K^a * L*1-a

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Functions of Money

A

Store of value
Unit of account
Medium of exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Money Supply Function

A 
M = C+D
C = currency
D = demand deposits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Monetary Base function

A 
B = C+ R
C = currency 
R = Reserves ( what banks have not lent)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How can the Fed influence lending

A
  1. OMO
  2. Discount Rate
  3. Reserve Requirements
  4. Interests paid on reserves
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Money supply formula

A 
M = (cr+1/cr+rr) B
cr = C+D
rr = R/D
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Identity of the economy

A

MV = PY

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What changes inflation according to MVPY?

A

M

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Ex ante interest rate

what does this mean

A

r = i-Epi

real interest rate before things realize

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Ex post interest rate

what does this mean

A

realized itnerest rate

r= i-pi

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Fisher Equation

A

r = i-pi

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Equation showing Money demand using MVPY

A

M/P = L(i,Y) (ISLM)
M/p varies with Y and V
Y varies independently, V varies on i

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Costs of inflation expected

A
  1. Shoeleather cost: burden of making additional trip to the bank
  2. Menu costs: cost from changing displayed prices.
  3. Relative price distortions because you know inflation is coming so you don’t bother changing prices
  4. Unfair tax treatment: taxes like capital gains unajusted
  5. Inconvenience of comparing to other time periods
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Seigniorage

A

the revenue raised from printing money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Cost of unexpected inflation

A
  1. Arbitrary redistribution of purchasing power. ie. borrowers paying lenders back in less valuable money.
  2. Increased uncertainty. HIgher inflation is more unpredictable
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Benefit of inflation

A

Nominal wages allows real wages to reach equilibrium levels without nominal wage cuts so labor market is cleared.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Hyperinflation

A

> 50%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Leverage ratio

A

assets/capital

1/lev ratio — % what the bank will do to fail

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Investment in bank: total increase in money supply

A

1/rr*deposit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Bank capital

A

Owner’s equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Equilibrium unemployment

A

fU=sE
f job finding
s job separation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

unemployment rate

A

U/L = 1/1+f/s

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Frictional unemployment

A

Frictions in the job search to find,
apply for job,
and sectoral shifts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Structural unemployment

A

Wage rigidity due to min wage,
unions,
effeciency wages

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Solow Model Formula @ steady state

A 
savings = break-even investment
sf(k)= (δ + n + g)k when dk = 0
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What is δ, n, g

A

δ: depreciation
n= population growth, dL/L
g = technological growth, dE/E

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

National income identity

A 
Y = C + I 
i = sy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

capital per effective worker: symbol, equation, steadystate growth rate

A

k = K/(LE), grows 0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Output per effective worker: symbol, equation, steadystate growth rate

A

y = Y/LE, grows 0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

output per worker symbol, equation, steadystate growth rate

A

Y/L = y * E

grows by g

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Total output

equation, symbol, steadystate growth rate

A

Y = LE*y

grows by n+g

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Goldern Rule

A

MPK(k*) = (δ+n+g)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

conditional convergence

A

countries converge to their own steady states

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Endogenous growth model

A

Y= AK

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

A in endogenous growth model

A

A = output for each unit of capital

54
Q

Investment and depreciation in endogenous growth model; equation of capital accumulation?

A

Investment = sY
Depreciation = δK
Equation of motion: sY-δK

55
Q

deltaY/Y = …(endogenous growth model

A

deltaY/Y = sA-δ

56
Q

Two sector model:

A

Manufacturing: Y = F [K, (1 − u)EL]
Research: ΔE = g(u)E

57
Q

Equation of capital accumulation(two sector model)

A 
ΔE = g(u)E
u = fraction of labor in research
58
Q

u and s in two sector model

A

s affects income but not growth rate

u affects income and growth rate

59
Q

Long run vs. short run

A

Long run: Y is fixed

Short run: P is fixed

60
Q

Long run Prices:

A

P = M^d * V * (1/Y)

61
Q

Keynesian Cross supply and demand

A

Supply: P = P’ (fixed)
Y = C(Y − T’) + I’ + G’
Y is variable

62
Q

What is planned expenditure

A

C(Y − T’) + I’ + G’

63
Q

Draw Keynesian cross

A

desktop

64
Q

Draw a reduction in aggregate demand (AD AS curve)

A

desktop

65
Q

Multiplier: government expenditure

A

∆Y = ∆G’/ (1 − MPC) > ∆G

66
Q

In the short run equilibrium if Y> Y’, in the LR prices will

A

rise

67
Q

In the short run equilibrium if Y

A

fall

68
Q

In the short run equilibrium if Y= Y’, in the LR prices will

A

remain constant

69
Q

Multiplier: taxes

A

∆Y = – (MPC * ∆T/1-MPC)

70
Q

ISLM Assumptions: Supply and demand

A

Supply: P = P’ (fixed)
Demand: Y = C(Y − T’) + I(r) + G’
I varies with r

71
Q

Derive IS graph with two changes in r

A

desktop

72
Q

Derive LM graph with two changes in r

A

desktop

73
Q

Equations that are used for LM

A 
(M/P)^d = L(r, Y ) Money Demand
(M/P) = M / P' Money Supply
74
Q

Equations that define IS-LM Summary

A 
Y = C(Y-T') + I(r) +G IS
M/P = L(r,Y) LM
75
Q
  1. Changes in IS in the long run (right shift)

2. Changes in LM in the long run (right shift)

A
  1. IS shift right: AD shifts right

2. LM shifts right: AD shifts right

76
Q

How can fed increase AD?

Details

A 
Raise M. 
LM shifts right
r decreases
I increases (I(r))
Y increases -- AD shift right
77
Q

How can government increase AD?

A

G or T
r decreases when IS shifts right
Y increases so AD shift right

78
Q

IS shock occurs. What happens?What is the long run solution?

A

Desktop

79
Q

SRAS equation

A

Y = Y’ + α(P − EP)
a is a positive parameter
EP is expected price level
P is actual price level

80
Q

Phillips Curve

Define terms

A 
π = E[π] − β(u − un) + ν
β is a constant
Eπ expected inflation
un is the NRU
u is actual unemployment
v is supply shock
81
Q

Demand pull inflation

A

− β(u − un)

82
Q

Cost push inflation

A

+ ν

83
Q

Sticky Price Model

A

P = s[EP} + (1-s )[P+a(Y-Y’)
s[EP} = set by sticky price firms
(1-s )[P+a(Y-Y’) set by flexible price firms

84
Q

Imperfect Information model: what happens when P>EP

A

produces more: thinks relative price has risen:

Thus, Y increases

85
Q

Adaptive expectations

A

People chain last year’s inflation rate and believe that it will play a factor in this year’s inflation rate
pi = pi-1 instead of epi

86
Q

Rational expectations

A

People take into consideration monetary and fiscal policies (all informaiton available)

87
Q

Sacrifice Ratio

A

how much of a year’s real GDP must be foregone to reduce inflation by 1 percent.
ratio usually = 5
5* inflation reduction = GDP loss

88
Q

Hysteresis

A

negative shocks will increase the NRU over time

89
Q

MPC

A

Marginal propensity to consume

[0,1]

90
Q

APC

A

Average propensity to consume

Decreases with total income

91
Q

Consumption equation

A

C = C’ + cY

C’ initial consumption

92
Q

2 Period Fisher Model of Consumption

slope?

A

C1 + C2/(1 + r) = Y1 + Y2/(1 + r)

slope = Marginal rate of substitution: -(1+r)

93
Q

Life cycle hypothesis equation

A

C = (W+RY)/T
W is present wealth
R is number of years individual earns income
Y is income

94
Q

Permanent income hypothesis

Consumption? APC?

A 
C = aY^p
P = permanent income Y = income 
APC = (aY^p)/Y
95
Q

Random walk hypothesis

A

Changes in consumption over time should be unpredictable given the permanent income hypothesis

96
Q

What does the permanent income hypothesis show

A

Consumption is proportional to permanent income. Permanent income implies taking debt to smooth consumption.

97
Q

Cost of capital

A

T otal cost = pK(i + δ − ∆pK/pK)

  • opportunity cost: i · pK (we use i because it is in nominal term: dollars)
  • depreciation cost: δ · pK
  • loss of values: −∆pK
98
Q

Net investment

A

In(MPK −pK/p(δ + r))

99
Q

I (investment)

A

In(MPK −pK/p(δ + r)) + δK

δK added to investment to cover depreciation

100
Q

Problems to measure debt

A
  1. inflation
  2. capital assets
  3. unaccounted liabilities
  4. business cycle
  5. ricardian equivalence
101
Q

Capital assets (debt)

A

if assets increase, debt will decrease

NOT counted ind ebt. Problem.

102
Q

uncounted liabilities (debt)

A

things not counted in debt. Insured deposits (FDIC)

103
Q

Inflation’s result on debt

A

Nominal debt grows at the rate of inflation, piD (D = real debt)

104
Q

Business cycle on debt

A

Increases in debt may be good to stabilize the system. Unclear effects

105
Q

Ricardian equivalence

A

If the government tax cuts today people will have to pay higher taxes in the future. So tax cuts don’t have much of an effect.

106
Q

Problems with ricardian equivalence

A
  1. People do not care for the future

2. Borrowing constraints. Tax cuts help people smooth out their income.

107
Q

Reasons for budget deficit/surplus

A
  1. Autostabilizers
  2. Tax smoothing; consistent taxes during recessions and expansions
  3. Shift burden of investment to future generation, who will benefti
108
Q

Inside lag

A

Time between a shock to the economy and POLICY action RESPONDING to the shock

109
Q

outside lag

A

time between policy response and actual EFFECt on economy

110
Q

Autostabilizers

A

have no lag; income tax, unemployment insurance

111
Q

Lucas critique

A

Hard to figure out people’s expectations to a policy change.

112
Q

Arguments for policy conducted by rule

A
  1. policy makers are self interested.

2. inconsistency and loss of trust over time with discretion

113
Q

Rules for monetary policy

A
  1. keep MS growth rate constatnt
  2. target nominal gdp
  3. target inflation
114
Q

Financial intermediaries

A

mutual funds, banks

way of getting direct resources from savers to borrowers

115
Q

Debt finance

A

Firms issuing bonds

116
Q

Equity finance

A

Firms issuing stocks

117
Q

Asymmetric information

A

one agent has more information than the other.

118
Q

Moral hazard:

A

hidden action, doing things that other parties cannot control

119
Q

Adverse selection

A

Hidden information; people with more to lose/ more information use the system to help themselves, harming people with less information

120
Q

Monetary, Fiscal response to a crisis

A

Monetary: increase M, lower interest rate, lender of last resort, taking on risky loans
Fiscal: increase G or T, insuring deposits

121
Q

Private Saving

A

Y-T-C

122
Q

Public Saving

A

T-G

123
Q

Trade Balance

A 
S-I = NX (modification from S=I)
Y-C-G-I = NX
124
Q

Policies that lead to a trade surplus?

A

Raise Savings, lower investment

125
Q

Currency appreciation

A

Strengthening of the currency against anothers

126
Q

Currency depreciation

A

WEakening of the currency against anothers

127
Q

Real Exchange rate formula

A

Real exchange rate = (Nominal exchange rate * Price of domestic good)/ price of foreign good

E = e x P/P*

128
Q

How are NX and the exhcange rate related

A

NX is a decreasing function of E;

NX(E)

129
Q

Purchasing Power Parity

A

E=1; goods should cost the same in real terms

130
Q

Problems against PPP

A
  1. Shipping costs
  2. Producs differ.
  3. Some goods aren’t easily tradeable
131
Q

Profit level (investment)

A

R/P - Pk/P(r+δ) = MPK - Pk/P(r+δ)

Finals Freshman Spring (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions