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ECN 313 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

GDP

A

Gross Domestic Product, the dollar value of final output produced during a given period within the country’s borders

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2
Q

GNP

A

Gross National Product, dollar value of final output produced during a given period by domestic factors of production (not necessarily inside the country’s borders)
GNP = GDP + NFP

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3
Q

Value-added approach (or the product approach)

A

GDP is calculated as a sum of value added to goods and services in production across all production units in the economy

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4
Q

Income approach to GDP

A

sum of all incomes received by economic agents contributing to production

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5
Q

Expenditure approach

A

GDP = C + I + G + X - M or total spending on all final goods and services produced in the economy

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6
Q

best way to measure a country’s well being

A

real GDP/capita (across time or across country comparison)

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7
Q

Nominal GDP

A

current year quantities x current year prices

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8
Q

Real GDP

A

current year quantities x base year prices

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9
Q

What does GDP leave out?

A
  1. leaves out non-market activity and underground activity
    - -home production
    - -tax evasion motives
    - -crime and illegal activities
  2. doesn’t accurately measure the value of goods and services produced by the government
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10
Q

GDP doesn’t explain

A
  1. income inequality
  2. what goods are actual consumed by the people of the economy
  3. leisure time enjoyed
  4. future economic prospects
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11
Q

inequality economic benefit

A

the possibility to earn a lot of money stimulates effort and innovation, encourages investment in human capital (education, etc.)

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12
Q

inequality economic costs

A

due to high inequality, some people are very poor, they may not take full advantage of their skills because they are unable to receive education or have inferior health care, etc.

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13
Q

GNP growth rate

A

g= y/ ((y-1) -1)

measure of the growth rate

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14
Q

small x and g calculation

A

g= ln (GDP year) - ln (GDP year before)

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15
Q

two components of an economic time series

A

growth (or trend) component

business cycle component

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16
Q

when are we in a recession

A
  1. when real per capita GDP has been falling for two consecutive quarters
  2. GDP below trend line
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17
Q

GDP deviations from trend

A
  • -happen on average every 10 years
  • -persistent
  • -typically stay within 5% from the trend
  • -hard to predict
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18
Q

time series decomposed into two components

A

trend

deviations from the trend

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19
Q

typical driving forces of recessions

A 
energy price increase
--reduces supply, demand
financial crisis
--investors get cautious, 
--borrowing/lending is inhibited,
--bank runs
policies
--reduced money supply
--higher taxes
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20
Q

policies used in recessions

A
  1. combat the driving force if possible
  2. temporarily stimulate supply and/or demand
    - -tax cuts
    - -increased gov. spending
    - -monetary easing (higher money supply)
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21
Q

74-75 recession

A

GDP fell 3%, max unemploy 9%
oil prices went up
expanded monetary policy

22
Q

81-82 recession

A

GDP fell 2.9%, max unemploy 10.8%
monetary contraction
Raegan tax cuts

23
Q

90-91 recession

A

GDP fell 1.5%, max unemploy 7.8%
monetary contraction
moderate tax increase

24
Q

01 recession

A

GDP fell .6%, max unemploy 6.5%
stock market crash
expanded monetary policy, tax cuts

25
Q

08 recession

A

GDP fell 7%, unemploy 8.2%
housing crisis, increased energy and raw material prices
expanded monetary policy, TARP, tax cuts, higher gov. spending

26
Q

comovement

A

presence of some regularities in fluctuation of several economic variables
cyclical

27
Q

positive correlation

A

when x increases y is also likely to increase, correlation coefficient between 0 and 1

28
Q

negative correlation

A

when x is increases y is likely to decrease, correlation coefficient between 0 and -1

29
Q

procyclical

A

positively correlated

30
Q

countercyclical

A

negatively correlated

31
Q

acyclical

A

not correlated

32
Q

GDP and imports

A

positively correlated

imports are more volatile

33
Q

GDP and comsumption

A

positively correlated
coincides with GDP
consumption is less volatile

34
Q

leading variable

A

x helps to predict GDP

35
Q

lagging variable

A

GDP helps to predict y

36
Q

coincident

A

variable neither leads nor lags

37
Q

GDP and investment

A

positively correlated
coincides with GDP
much more volatile than GDP

38
Q

GDP and employment

A

positively correlated
lags GDP
less volatile

39
Q

GDP and labor productivity

A

positively correlated
coincides with GDP
less volatile

40
Q

GDP and gov. espenses

A

acyclical
cannot talk about leading/lagging
as volatile as GDP

41
Q

GDP and price level

A

negatively correlated
coincide with GDP
less volatile

42
Q

one period model

A 
consumption, employment and labor productivity
final goods market
labor market
economic agents
--firms 
--consumers
--government
43
Q

simplifying assumptions

A 
only one consumer-average
only one producer-average
only one good produced and sold
only one way to spend time away from work (leisure)
no money in the economy
44
Q

utility function

A

more is preferred to less
consumers like diversity
consumption and leisure are normal goods
substitution > income effect

45
Q

indifference curves

A

are decreasing
do not intersect
correspond to higher utility if they are further from the origin
are convex

46
Q

endogenous

A

variable you can choose

47
Q

exogenous

A

variable you cannot choose parameters

48
Q

consumer’s optimal choice

A

marginal rate of substitution=w or

the slope of the budget line = the slope of the indifferent curve

49
Q

pure positive income effect

A

budget line shifts upward in a parallel way (because normal good)

50
Q

pure substitution effect

A

move along indifference curve, maintaining utility, but at a different slope

51
Q

combination of substitution and income effects

A

shift to higher utility while the budget line moves up or down at a different slope, so not parallel

ECN 313 (1 decks)

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