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Macro Final > Final > Flashcards

Final Flashcards

1
Q

Equation for nominal GDP

A

Real GDP*Price level

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2
Q

L index

A

Percent change of Real GDP in year 1 prices

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3
Q

P index

A

Percent change of Real GDP in year 2 prices

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4
Q

Fisher index

A

Year 2 chain weighted=Year 1 chain weighted*(1 + avg of L and P)

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5
Q

Constant growth rule

A

Yt=Yo(1+g)^t

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6
Q

Rule of 70

A

Time to double = 70/g

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7
Q

Per capita GDP

A

y=Abar*k^(1/3)

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8
Q

Cobb Douglas ________ predicts differences in per capita GDP

A

Under

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9
Q

Why does Abar vary?

A

Property rights, rule of law, human capital, etc

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10
Q

How do you solve Cobb Douglas?

A

Profit maximization

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11
Q

Abar is _________ important in Solow (compared to Cobb Douglas) due to the feedback effect from __________.

A

More, capital accumulation

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12
Q

Does capital accumulation drive LR growth?

A

No

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13
Q

Solow LR growth

A

Zero

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14
Q

How do you solve the Solow model?

A

Steady state sY=dK

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15
Q

What is zbar?

A

Worker productivity

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16
Q

Does the Romer model exhibit transition dynamics?

A

No. It has a balanced growth path and constant growth rate instead.

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17
Q

Does Solow-Romer have transition dynamics or a balanced growth path?

A

Both

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18
Q

In the Solow Romer model, countries grow at the…

A

Growth rate of knowledge

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19
Q

Why does Solow Romer grow faster than Romer?

A

Direct: higher output
Indirect: higher savings and investment

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20
Q

What happens if you increase savings in Solow Romer?

A

You jump to a higher balanced growth path but your growth rate doesn’t change. This is known as a level change.

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21
Q

How do you get the growth accounting measures equation?

A

Start with Cobb Douglas, divide both sides by L, write in growth rates

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22
Q

How do you solve Romer for the balanced growth path?

A

Sub into Lyt, use constant growth rate, sub into At

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23
Q

Solve Romer for output per person

A

Yt/L

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24
Q

Solve Romer for stock of knowledge

A

Delta At+1/At

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25
Q

Solve Solow Romer for growth rate

A

Convert production function to growth rates, remember gyt=gkt

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26
Q

Solve Solow Romer for output per person

A

Start with equation for gkt, flip flop to get gyt, solve for K*, sub back into production function, divide by L

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27
Q

Wage rigidity

A

Wages don’t change after a shock to labor demand or supply

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28
Q

Equation for PDV

A

Future value/((1+interest rate)^T)

29
Q

$100 every year for x years

A

PDV0+PDV1+…+PDVx

30
Q

Deflation

A

Negative interest rates

31
Q

Disinflation

A

Positive but declining

32
Q

Equation for the quantity theory of money

A

MV=PY

33
Q

Quantity theory of money written in growth rates

A

gm=inflation+gy

34
Q

Fisher equation

A

Nominal interest rate=real interest rate+inflation

i=R+inflation

35
Q

3 premises of the SR model

A

1) economy is hit my shocks
2) monetary and fiscal policies affect the real economy in the SR
3) there is a dynamic trade off between output and inflation in the SR

36
Q

Okun’s law

A

u-ubar=-1/2(Yt tilda)

37
Q

Unemployment during the Great Recession

A

10%

38
Q

Leverage

A

Total liabilities/equity

39
Q

Equation for return

A

1/leverage

40
Q

IS curve: SR output depends on…

A

The real interest rate

41
Q

The MP curve: the central bank sets the…

A

Nominal interest rate, which influences the real interest because of sticky inflation

42
Q

Phillips curve: inflation rises if the economy is…

A

Booming

43
Q

Equation for IS curve

A

Yt tilda=abar-bbar(Rt-rbar)

44
Q

What is little abar?

A

Aggregate demand shock

45
Q

How do you derive the IS curve?

A

Start with the national income identity, sub in investments, gather “a” terms, solver for short run output

46
Q

Equation for Phillips curve

A

Inflation at t=inflation last period +vbar*Yt tilda + obar

47
Q

What is vbar?

A

Sensitivity to demand conditions

48
Q

What does a tightening or contracting Monetary Policy mean

A

Raise rates

49
Q

Why is the money supply curve vertical?

A

The fed can change the money supply whenever they want

50
Q

To increase the money supply we _____ bonds

A

Buy

51
Q

Bond yield equation

A

(Coupon payment + face value - price)/price

52
Q

There is an _____ relationship between interest rates and bond prices

A

Inverse

53
Q

Equation for monetary policy rule

A

Rt-rbar=mbar(inflation at t - inflation target)

54
Q

Dovish

A

Low mbar, steeper AD curve

55
Q

Hawkish

A

High mbar, flatter AD curve

56
Q

AS/Ad exhibits transition dynamics because

A

This period’s inflation is dependent on last period’s inflation

57
Q

Equation for AD curve

A

Yt tilda=abar-bbar(inflation at t - inflation target)

58
Q

Equation for AS curve

A

Inflation at t=inflation at t-1 + vbar*Yt tilda + obar

59
Q

Equation for Taylor MP rule

A

(Rt-r)=mbar(inflation at t-inflation target) + nbar*Yt tilda

60
Q

The Taylor MP curve makes the AD curve _____ than the regular MP rule.

A

Steeper

61
Q

Equation for financial friction

A

R=Rff+fbar

62
Q

What is fbar?

A

Financial friction. Only occurs during a financial crisis

63
Q

When a financial bubble pops, it acts as a ______ AD shock

A

Negative

64
Q

Government budget constraint

A

G+Tr+iBt=T+delta Bt+1 + delta mt+1

G government purchases
Tr transfer purchases
iBt interest payments on debt
T taxes
B borrowing
M change in money stock
65
Q

Why has trade risen?

A

Transportation cost are declining

Tariffs are declining

66
Q

What is the law of one price?

A

EP=Pw

67
Q

Equation for real exchange rate

A

RER=EP/Pw

Must equal 1 in the long run

68
Q

What happens to the exchange rate if you increase interest rates?

A

Increase exchange rate, decrease exports, increase imports, decrease net

69
Q

Policy Trilemma

A

Stable exchange rates, MP autonomy, free financial flows

Macro Final (1 decks)

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