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Macroeconomics > Final Exam > Flashcards

Final Exam Flashcards

1
Q

Labor Force Participation Rate

A

The percentage of a society’s adult population that either are employed or are unemployed and actively seeking employment.

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2
Q

Consumption

A

Spending by households on goods and services.

Exeption: The purchase of new housing is not considered a form of consumption. (Purchasing new housing is considered an investment.)

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3
Q

Investment

A

The purchase of goods that will be used in the future to produce more goods and services.

Investment is the sum of the purchases of inventories, structures (e.g. household purchases of new housing), and capital equipment.

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4
Q

Components of GDP

A
  • Consumption
  • Investment
  • Government Spending
  • Net Exports

Every dollar of expenditure included in the GDP calculation must fall into one of these four components.

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5
Q

Government Spending

A

Spending on goods and services by local governments, state governments, and federal governments.

Transfer payments are not included in government spending calculations.

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6
Q

Transfer Payments

A

Payments not made in exchange for a currently produced good or service.

Transfer payments alter household income, but do not reflect an economy’s production.

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7
Q

Examples of Transfer Payments

A
  • Social Security Benefits
  • Unemployment Insurance
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8
Q

Net Exports

A

Foreign spending on domestically produced goods (i.e. exports) minus domestic spending on foreign-produced goods (i.e. imports)

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9
Q

Flaws of GDP Calculations

A
  • Does not consider leisure time/activities.
  • Does not consider the quality of the environment.
  • Does not consider the distribution of income.
  • Does not account for economic activity that takes place outside of markets.
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10
Q

What does real GDP show?

A

How an economy’s overall production of goods and services changes over time.

Real GDP measures the total value of all goods and services produced in an economy after adjusting for inflation.

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11
Q

Nominal GDP

A

A measure of the value of all goods and services produced in an economy at current prices.

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12
Q

Real GDP

A

A measure of the value of all goods and services produced in an economy at constant prices.

Real GDP measures the quantity of output produced by an economy without considering changes in prices.

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13
Q

4 Types of Unemployment

A
  • Cyclical Unemployment
  • Structural Unemployment
  • Frictional Unemployment
  • Seasonal Unemployment
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14
Q

Cyclical Unemployment

A

Unemployment caused by shifts in the business cycle that impact the demand for labor.

Cyclical unemployment causes unemployment to change in the short-term.

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15
Q

Structural Unemployment

A

Unemployment caused by individuals lacking skills that are valued by the labor market.

Structural unemployment causes unemployment to change in the long-term.

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16
Q

Frictional Unemployment

A

Unemployment that occurs as workers move between (or search for new) jobs.

Frictional unemployment causes unemployment to change in the long-term.

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17
Q

Seasonal Unemployment

A

Unemployment that occurs when people working in seasonal jobs become jobless due to the demand for labor decreasing.

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18
Q

Unemployment Rate Formula

A

U = [(Unemployed Individuals) / (Labor Force)] x 100

The labor force is the total number of employed and unemployed persons.

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19
Q

Labor Force

A

The total number of employed and unemployed persons.

LF = (Employed Persons) + (Unemployed Persons)

The labor force does NOT include individuals who are not actively seeking employment.

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20
Q

Labor Force Participation Rate Formula

A

LFPR = [(Labor Force) / (Adult Population)] x 100

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21
Q

Gross Domestic Product (GDP)

A

The final value of all goods and services produced within a country in a given period of time.

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22
Q

What economic activities does the GDP calculation exclude?

A
  • Production of illegal goods and services
  • Informal production of goods and services
  • Sale of used (or previously produced) goods and services
  • Unreported cash transactions
23
Q

Gross National Product (GNP)

A

The final value of all goods and services produced by the citizens (or firms) of a country.

24
Q

C

A

Consumption

25
Q

I

A

Investment

26
Q

G

A

Government Spending

27
Q

NX

A

Net Exports

  • M = Imports
  • X = Exports
28
Q

Inflation

A

The rate of change of prices in an economy.

29
Q

C0

A

Autonomous Consumption

Autonomous Consumption: Wealth-based consumption

30
Q

Dual Mandate of Federal Reserve

A
  • Stabilize Prices
  • Maximize Employment
31
Q

Exogenous Variables in the IS-LM Model

A
  • G (Government Spending)
  • NX (Net Exports)
  • C0 (Autonomous Consumption)
  • m (Marginal Propensity to Consume)
  • T (Tax Rate)
  • I0 (Autonomous Investment)
32
Q

Endogenous Variables in the IS-LM Model

A
  • Y (Real GDP)
  • r (Real Interest Rate)
  • C (Consumption)
  • I (Investment)
33
Q

Tools of the Federal Reserve to Increase the Real Money Supply

A
  • Buying Bonds from the Government
  • Decreasing the Discount Rate
  • Decreasing the Required Reserve Ratio
  • Quantitative Easing
  • Decreasing the Interest Rate on Reserves
34
Q

What body conducts monetary policy?

A

The Federal Reserve Bank

Monetary policy involves changes to the money supply.

35
Q

What body conducts fiscal policy?

A

Government

Fiscal policy involves changes to government spending or taxation.

36
Q

Consumption Equation

A

C = C0 + m(Y – T)

37
Q

What factors will cause the IS curve to shift?

A
  • Change in C0 (e.g. Increase in Wealth)
  • Change in T (e.g. Decrease in Tax Rate)
  • Change in I0 (e.g. Increase in Interest Rate)
  • Change in G (e.g. Increase in Infrastructure Spending)
  • Change in X (e.g. Decrease in Tourism)
  • Change in M (e.g. Increase in Foreign Good Prices)
38
Q

How will an increase in wealth impact the IS curve?

A

The IS curve will shift right, as consumers’ spending on non-disposable goods/services (i.e. autonomous consumption) will increase.

39
Q

How does an increase in spending impact the real interest rate?

A

The real interest rate increases.

  • An increase in spending leads to an increase in real money demand, which results in an increase in real interest rates.
  • An increase in spending leads to an increase in aggregate demand, which shifts the price level up; this subsequently decreases the puchasing power of money, which decreases the real money supply and increases the real interest rate.
40
Q

j

A

Interest Rate Sensitivity

Interest Rate Sensitivity (j): The investment-related responsiveness (of firms and households) to changes in the real interest rate.

41
Q

How does a change in price level impact the AS-AD graph?

A

The result is movement along the AD curve.

A change in the price level results in the movement from one IS-LM solution/intersection to another IS-LM solution/intersection.

42
Q

z

A

Exogenous parameter that measures the responsiveness of firms’ output to changes in the price level.

43
Q

Physical Capital

A

K

44
Q

Human Capital

A

H

45
Q

Labor

A

L

46
Q

N

A

Natural Resource

47
Q

A

A

Technology

48
Q

YN

A

Long-Run GDP

“Natural GDP”

49
Q

Pe

A

Expected Price Level

50
Q

What is contractionary monetary policy designed to combat?

A

Inflation

Inflation rates are too high.

51
Q

What is expansionary monetary policy designed to combat?

A

Recession/Depression

52
Q

Discount Ratio

A

The interest rate the Federal Reserves charges private banks for taking out loans from the FR.

53
Q

Efficiency Wages

A

A strategy utilized by firms to retain skilled workers (and increase productivity and develop worker loyalty) by paying higher wages.

Efficiency wages is a cause of structural unemployment.

Macroeconomics (5 decks)

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