Econ 291

Question 1

What is the production function and what do each of it’s inputs mean?

Answer 1

The production function measures the effectiveness of capital and labour. It is in the form Y = AF(K,N). Y is the total output, A is the a number measuring productivity, F is a function that relates Y to K and N, K is the capital stock or quantity of capital used, N the number of workers employed. All the inputs and output are given over a certain period of time

Question 2

What formula do you use to find the measure of productivity in the Canadian economy?

Answer 2

A=Y/(K^0.3*N^0.7)

Question 3

a 10% increase in labour productivity in the equation Y = AF(K,N) equals to what percentage in output?

Answer 3

10%

Question 4

What is the “substitution effect of higher real wage?”

Answer 4

the decision of a worker to supply more hours of labour because the net gain in utility from working has increased due to a raise in his real wage

Question 5

what is the “income effect of a higher real wage?”

Answer 5

the decision of a worker to supply less labour to the market because he can now achieve his wants with less work due to an increase in real wage

Question 6

What is desired capital stock?

Answer 6

The amount of stock that leads to the profit maximizing output

Question 7

What is the equation to find the user cost of capital?

Answer 7

UC = interest cost (value gained if the money had gone into a interest earning asset/unit of time) + deprecitation cost (the amount of money that the capital depreciates by/unit of time)

Question 8

What are the three main values affecting capital stock?

Answer 8

1. expected future marginal product of capital (MPK^f)
2. The real interest rate (r)
3. The purchase price of capital

Question 9

What are 2 equations for the goods equilibrium?

Answer 9

Y=C(desired)+I(desired)+G
OR
I(desired) = Y - C(desired) - G aka I = S(desired)

Question 10

What is the equation for Private saving?

Answer 10

(Y+TP+NFP+INT-T) - C

aka income - consumption

Question 11

What is the equation for national savings?

Answer 11

Y+NFP-C-G

Question 12

What is GNP?

Answer 12

Gross national product. The total peoduction of a nation including citixens abroad, Y+NFP

Question 13

What is the current account balance?

Answer 13

The total income paid and received from and to foreign sources. ie NX+NFP

Question 14

What is the equation for government savings?

Answer 14

T-TR-INT-G

Question 15

What does the GDP deflator measure?

Answer 15

It compare the nominal gdp to the real gdp

Question 16

How is unemployment calculated?

Answer 16

number of unemployed/labour force

Question 17

What is the income-expenditure model?

Answer 17

Y=C+I+G+NX

Question 18

What is the full employment level of employment?

Answer 18

When wages and prices are fully adjusted

Question 19

what is the employment ratio?

Answer 19

ratio of employed to working age population

Question 20

The income effect of the real interest rate on savings is what?

Answer 20

The effect that an increase in the interest rate has on consumption ie bob rate goes up so he is richer so he will increase income

Question 21

How does the product approach work?

Answer 21

Its value added. ie total output minis inputs

Question 22

How does the income approach work?

Answer 22

Adds together all income includng tax to the government and profit

Question 23

what is the expenditure approach to finding GDP?

Answer 23

finding the amoun tthat the users spend in total to buy products (not the goods used up in production

Question 24

What is the equation for national saving?

Answer 24

Y+NFP-C

Question 25

Whats another equation for savings?

Answer 25

S=I+CA

Question 26

What are 2 major parts of the balance of payments?

Answer 26

Current account and Capital account