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Year 1 > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

What is the inflation rate?

A

A device that measures how fast prices are rising

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2
Q

What are endogenous variables?

A

Variables that a model tries to explain

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3
Q

What is the market clearing condition?

A

Quantity supplied = Quantity demanded

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4
Q

What is the difference between the long run and the short run?

A

In the long run, prices are flexible. In the short run, they’re sticky

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5
Q

What is GDP

A

Gross Domestic Product is the market value of all final goods and services produced within an economy in a given period of time

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6
Q

Whats Nominal GDP

A

The value of goods and services measured at current prices

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7
Q

Whats Real GDP

A

GDP measured at fixed prices

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8
Q

Whats Gross National Product

A

The total income earned by nationals, including those living abroad

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9
Q

What is the Marginal Product of Labour

A

The extra output produced by a unit increase in Labour

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10
Q

When should a firm keep employing labour?

A

Until MPL = w/p

w = wage, p = price

w/p is the real wage

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11
Q

When should a firm keep renting capital

A

Until MPK = r/p, the real price of rent

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12
Q

What is the general form of a Cobb-Douglas Production function?

A

Y(K,L) = AK^(a)L^(1-a)

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13
Q

Show the Marginal Propensity to consume on a graph

A

MPC is the increase in consumption when disposable income increases by 1

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14
Q

What is the national saving?

A

Y - C - G

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15
Q

What is private saving?

A

Y - T - C

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16
Q

What is public saving?

A

T - G

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17
Q

What is saving equal to?

A

Investment

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18
Q

Plot Saving against Investment

A
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19
Q

Show the impact of an increase in government purchases on saving and investment. Explain crowding out

A

Increase in government purchases causes interest rate to rise and investment to fall. Called crowding out investment

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20
Q

What is fiscal policy?

A

Changes to spending and taxation, usually by elected representatives

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21
Q

What is monetary policy

A

Changes to interest rates and banking, made by central banks

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22
Q

What are the three properties of money?

A

i) store of value
ii) unit of account
iii) medium of exchange

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23
Q

What is the Quantity Theory of Money?

A

Money Supply x Velocity = Prices x Output

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24
Q

Explain why changes in the money supply has ultimate control over inflation

A
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25
Q

What is seigniorage?

A

The revenue raised by printing money

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26
Q

What is the fisher equation?

A

r = i - pi

r = real interest rate

i = nominal interest rate

pi = inflation

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27
Q

What is the effect on the nominal interest rate by a 1% increase in inflation

A

a 1% increase

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28
Q

What is the ex-ante real interest rate?

A

The expected real interest rate

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29
Q

What are the costs of expected inflation? [2]

A

Shoe-Leather costs - constantly walking to the bank

Menu costs - constant price changes

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30
Q

What is the impact of unexpected inflation

A

If the real interest rate is less than expected interest rate, then the creditor gains as the money being paid back is worth more than anticipated

If the interest rate is more than expected, the debtor gains as the debtor repays the loan with less valuable currency.

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31
Q

What is classical dichotomy?

A

The theoretical separation of nominal and real variables

32
Q

What is Saving minus Investment

A

Net Exports

33
Q

When does a country have a trade surplus?

A

When net exports are greater than zero

34
Q

In an small open economy, what is assumed about the real interest rate

A

Always equal to world interest rate, r*

35
Q

Show the impact of expansionary fiscal policy in a small open economy

A
36
Q

Show the impact in a small open economy of an increase in investment

A
37
Q

What is the nominal exchange rate

A

The relationship between the relative price of the currency of two countries

38
Q

What is the equation for the real exchange rate?

A

(Nominal exchange rate)(Price of domestic good) / (Price of foreign good)

39
Q

What is the relative price of domestic goods if the real exchange rate is high?

A

Domestic goods are fairly expensive

40
Q

Show the impact on net exports and the real exchange rate with expansionary fiscal policy

A
41
Q

What is the equilibrium unemployment rate

A

sE=fU

42
Q

What is frictional unemployment?

A

the time it takes workers to search for a job

43
Q

What are sectoral shifts?

A

Changes in demand for certain skills in industries

44
Q

What is wage rigidity?

A

When wages fail to adjust to the level where labour supply equals labour demand

45
Q

Show the effect of wage rigidity on unemployment

A
46
Q

What is the Solow Growth model designed to show?

A

How growth in the capital stock, in the labour force and advances in technology, interact in an economy

47
Q

Draw the basic solow model

A
48
Q

When is the capital stock in a steady state

A

when sf(k) = delta(k)

49
Q

Show how an increase in saving affects the capital stock

A
50
Q

When is the golden rule steady state achieved?

A

When consumption is maximised, ie when MPK = delta

51
Q

Show the golden rule steady state on a graph

A
52
Q

Show the transitional effect on output, consumption and investment to the golden rule steady state from starting with too much capital

A

Increase saving rate

Output increases

Consumption increases

Investment decreases

53
Q

What is denoted by n in the solow growth model?

A

The increase in population

54
Q

What is the steady state condition in the Solow model with population growth?

A

MPK = (delta + n)k

55
Q

What is denoted by g in the Solow growth model?

A

Labout-augmenting technological progress

56
Q

Give 3 leading economic indicators

A

New orders for consumer goods

Average work week

Index of stock prices

57
Q

What is aggregate demand?

A

The quantity of goods and services people want to buy at any given price levels

58
Q

What is aggregate supply?

A

The relationship between the quantity of goods and services supplied and the price level

59
Q

Show long term and short term aggregate supply lines on a graph

A
60
Q

Show the effect on prices and output of a decrease in the money supply both in the long run and the short run

A
61
Q

What does IS and LM stand for?

A

IS - investment, saving

LM - liquidity, money

62
Q

Draw the keynesian cross

A
63
Q

What is the government purchases multiplier?

A

A 1 unit increase in government purchases increase output by 1/1-MPC, where MPC is the gradient of planned expenditure

64
Q

Draw the IS-LM model

A
65
Q

What is the effect of increase in government spending on the IS curve

A

Shifts to the right

66
Q

What is the effect on an increase in the money supply on the LM curve?

A

Shifts to the right

67
Q

Show the impact of an increase in government purchases on the IS-LM model

A
68
Q

Show the impact of an increase in the money supply on the IS-LM model

A
69
Q

What are the three central bank reactions to an increase in government purchases?

A

Hold output constant

Hold interest constant

Hold money supply constant

70
Q

What is the pigou effect?

A

As prices fall and real money balances rise, consumers should real wealthier and spend more

71
Q

What is the debt-deflation theory?

A

A fall in price levels raise the amount of real debt, so unexpected inflation enriches creditors and impoverishes debtors

72
Q

Draw the mundell fleming model

A
73
Q

Show the effect of an increase in government spending with a floating exchange rate?

A
74
Q

Show the effect of an increase in the money supply with a floating exchange rate

A
75
Q

What is the impact of an increase in net exports in a floating exchange rate?

A

IS curve shifts right, exchange rate rises, output remains constant

76
Q

Show the effect of an increase in government spending in a fixed exchange rate system

A
77
Q
A

Year 1 (11 decks)

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