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Macroecon > MacroBook1 > Flashcards

MacroBook1 Flashcards

1
Q

What is macroeconomics?

A

The study of the economy as a whole.

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2
Q

What does Real GDP measure?

A

The total income of everyone in the economy (adjusted for the level in prices for time comparison).

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3
Q

What are a models inputs and outputs?

A

Inputs - Exogenous variables/Outputs - Endogenous variables

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4
Q

What is meant by “market clearing”?

A

The economic assumption that market prices move quickly to keep supply/demand in equilibrium.

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5
Q

What is national income accounting?

A

The accounting system used to measure GDP and many related statistics.

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6
Q

What is the difference between a stock and a flow?

A

A stock is a quantity measured at a given point in time whereas a flow is a quantity measured per unit of time.

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7
Q

Are used goods included in GDP calculations?

A

No they are not produced during the given time period.

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8
Q

What is Gross domestic product (GDP)?

A

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

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9
Q

How is inventory treated in GDP calculations?

A

If inventory is to be sold it is assumed the firm buys it for itself and is counted. If it is not it only lowers income so it is not counted. Inventory is not counted when it is sold and it is an expenditure and a disinvestment.

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10
Q

What is an imputed value in GDP calculations?

A

The estimation of goods or services that are not sold in the marketplace and do not have market prices. Public services for example.

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11
Q

What is the difference between nominal and real GDP?

A

Nominal GDP is calculated using current prices. Real GDP is the value of goods and services using a constant set of prices.

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12
Q

What is the GDP deflator?

A

GDP deflator = Nominal GDP/Real GDP. The GDP deflator measures the price of output relative to its price in the base year. It is used to deflate nominal GDP to yield real GDP.

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13
Q

What is Gross National Product (GNP)?

A

The total income earned by nationals (residents of nation) GNP = GDP + Factor Payments from abroad - Factor payments to Abroad (factor payments are wages, profit, and rent)

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14
Q

What is Net national product (NNP)?

A

NNP = GNP - Depreciation (Depreciation is called the consumption of fixed capital because it is the cost of producing the output of the economy.) NNP is approximately equal to national income.

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15
Q

How is personal income calculated?

A

Personal Income = National Income

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16
Q

What is disposable income?

A

Disposable personal income = Personal Income - Personal tax and nontax payments

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17
Q

What is the Consumer Price index?

A

It is the weighted average price of baskets of goods relative to the same baskets of some base year.

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18
Q

What is the PPI?

A

The same idea as the CPI but with firm production input baskets.

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19
Q

What is core inflation?

A

Consumer inflation that excludes food and energy.

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20
Q

What differences exist between the CPI and GDP deflator?

A
  1. GDP deflator measures prices of all goods and services whereas the CPI measures only the prices of consumer goods and services. 2. The GDP deflator includes only goods produced domestically whereas the CPI includes price of imported goods. 3. The CPI assigns fixed weights to the same basket prices of different goods whereas the GDP deflator assigns assigns changing weights to different baskets.
21
Q

What are some issues with CPI?

A

1- Substitution occurs of higher priced goods 2- Introduction of new goods gives more choice 3- Quality changes giving more or less value per dollar spent

22
Q

Who is included in the labor force?

A

The unemployed who have looked for work in the last four weeks and the employed.

23
Q

How is the unemployment rate calculated?

A

Number of unemployed/labor force X 100

24
Q

What is the labor force participation rate?

A

Labor force/adult population X 100

25
Q

What are the main factors of production?

A

Capital and Labor

26
Q

What is the production function?

A

Y = F(K, L) *Y is output.

27
Q

What is a constant return on scale?

A

An equal increase of each factor, Capital and Labor, results in an equal increase in output.

28
Q

What is profit?

A

Revenue - Labor costs - Capital costs –P(rice)Y - wL - rK or P*F(K, L) - wL - rK

29
Q

What is the marginal product of labor?

A

MPL = F(K, L + 1) - F(K, L)

30
Q

What is diminishing product of labor?

A

Holding Capital constant, each additional unit of labor adds decreasing marginal product.

31
Q

What is change in profit from additional unit of labor?

A

(P x MPL) - w

32
Q

What is the marginal propensity to consume?

A

For every additional dollar earned, how much goes to consumption versus how much goes to saving. For example, if a consumer spends .80 of an additional dollar and saves 0.20. The MPC is 0.8.

33
Q

What is the difference between nominal and real interest rates?

A

Nominal interest is the rate of interest to borrow.

34
Q

What is Real interest rate?

A

Real interest rate is the nominal interest rate corrected for the effects of inflation.

35
Q

How to calculate Real inflation rate?

A

Real inflation rate = nominal rate - inflation rate.

36
Q

What is the investment function?

A

I = I( r ). Also I = Y - C - G

37
Q

What are the three types of saving and their equations?

A

National saving. Private Saving. Public Saving.

38
Q

What are the three purposes of money?

A

1 - Store of value (way to transfer purchasing power into the future). 2 - Unit of account (provide the terms in which prices are quoted and debts are recorded). 3 - Medium of exchange (used to buy and sell good and services)

39
Q

What is an exchange rate?

A

The price at which two countries trade with each other.

40
Q

What is the difference between nominal exchange rates and real exchange rates?

A

The nominal exchange rate is the relative price of currencies of two countries. $1.25 to 1 Euro. The real exchange rate is the relative price of the goods of two countries. That, is the real exchange rate tells the rate at which we can trade the goods of one economy for the goods of another.

41
Q

How do you determine real exchange rate?

A

Real exchange rate = Nominal exchange rate X Price of domestic good/Price of foreign goods. If the real exchange rate is high, foreign goods are relatively cheap and domestic goods are relatively expensive. If the real exchange rate is low, foreign goods are relatively expensive and domestic goods are relatively cheap.

42
Q

What is money supply?

A

The amount of money in an economy. Usually money supply is controlled through open-market operations.

43
Q

What is monetary policy?

A

The policies of government to control the money supply.

44
Q

What entities control monetary policy?

A

Government independent Central banks. The FRB sets policy at its FOMC meetings.

45
Q

What is the quantity theory of money?

A

MVbar= PY (Vbar means velocity is fixed). A change in the quanity of Money (M) must cause a proportional change in nominal GDP (PY). That is if velocity is fixed, the quantity of money deterines the dollar value of the economy’s output.

46
Q

What is seigniorage?

A

The ability of government to raise revenue by printing money. Printing money to raise revenue increases the money supply which, in turn, increases inflation.

47
Q

What is the inflation tax?

A

The reduction in value of held money when inflation exists. Held money today is less valuable tomorrow.

48
Q

What is the Fisher equation and Fisher effect?

A

Nominal interest (i) = Real interest (r) + Inflation (i) This shows that nominal interest can change for two reasons: the real interest rate changes or because the inflation rate changes.

Macroecon (1 decks)

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