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ECON 102 > Midterm 1 (Chapters 19-22) > Flashcards

Midterm 1 (Chapters 19-22) Flashcards

1
Q

5 key variables of Macroeconomics

A

YUPie: national income, unemployment, prices, interest rates, exchange rates

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2
Q

GDP

A

FINAL market value of everything produced in the economy during a fiscal year, no double counting of intermediate goods and no reused or resold goods

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3
Q

Spendthrift economy

A

Household spends ALL income at firms, firms pay income to household

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4
Q

Frugal economy

A

With saving and investment; Household saves some income at bank, bank loans money to firm for investment

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5
Q

Governed or closed economy

A

With taxes (forced savings) and government purchases but no international trade

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6
Q

Open economy

A

With international trade (imports and exports)

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7
Q

Net domestic product

A

Net domestic product= GDP - depreciation= factor payments or NDPFC (WRiP) + non-factor payments (IBT-Subsidies) - depreciation

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8
Q

Nominal GDP vs. Real GDP

A

Nominal GDP is based on current prices and quantities while Real GDP is based on base-year prices (constant) and current quantities

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9
Q

GDP vs. GNP

A

GDP is the income from outputs produced IN Canada and is a better measure of domestic economic activity while GNP is the income received BY Canadians and is a better measure of economic well-being of Canadians

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10
Q

Output gap (Y-Y*)

A

Actual national income - potential national income (Y at full employment)

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11
Q

Recessionary gap

A

When Y < Y*

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12
Q

Inflationary gap

A

When Y > Y*

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13
Q

Components of a business cycle

A

Y cycles around Y* (constant positive slope): Trough (recession or depression), Expansion (boom or recovery), Peak, Contraction

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14
Q

Who is considered unemployed?

A

Those willing and able to work but have no jobs

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15
Q

Who’s included in the labor force?

A

The unemployed and the employed

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16
Q

Unemployment rate

A

u= unemployed/labour force x 100

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17
Q

Employment rate

A

employed/working age population (including discouraged workers)

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18
Q

Types of unemployment

A

Frictional (turnover of jobs or entering the workforce), Structural (mismatch in skills offered and demanded), Cyclical (recessionary gap),

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19
Q

Non-accelerating inflation rate of unemployment (NAIRU)

A

Natural or normal rate of unemployment or unemployment rate at full employment (Y*) where frictional and structural are still present

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20
Q

Consumer price index (CPI)

A

Index of weighted average price of all G&S in the representative basket of all goods; (PxQ in current year/PxQ in base year) x 100

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21
Q

Nominal vs. Real interest rate

A

Nominal refers to the current cost of borrowing or what you pay back to the bank while Real refers to nominal i-rate discounted for inflation rate (diluted dollars)

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22
Q

External value vs. exchange rate

A

External value is the price/value of the domestic currency in terms of a foreign currency while Exchange Rate is the price of foreign currency or the no. of CAD required to purchase 1 unit of foreign currency

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23
Q

Appreciation vs. Depreciation

A

Appreciation means a rise in EV and a fall in ER while depreciation means a fall in EV and a rise in ER

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24
Q

GDP from value added approach

A

Firm’s revenue (factor payments) - payments for intermediate goods

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25
Q

GDP from expenditure

A

Consumption (on all durable and non-durable G&S) + Investment (not for present consumption) + Government purchases + Net exports

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26
Q

Types of investment

A

Prince Edward Islander: Plant and equipment, Inventory, Residential production

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27
Q

GDP from income

A

Factor payments or NDPFC + Non-factor payments (IBT-Subsidies) + Depreciation

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28
Q

Implicit GDP deflator

A

Nominal GDP/Real GDP x 100 = (Current P x Current Q/Base-year P x Current Q) x 100

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29
Q

Omissions from GDP

A

Illegal activities, underground economy, non-market activities, economic “bads” (e.g. negative externalities)

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30
Q

Production per capita GDP

A

GDP/population, measures the standard of living

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31
Q

Productivity

A

GDP/employment = GDP/no. of hours worked, measures the rate of technological change

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32
Q

Major assumptions for ASAD model

A

Demand determines output, assuming P is constant (zero inflation) and Y* is constant (no economic growth)

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33
Q

Consumption function

A

C = f(Y) where C= current desired expenditures and Y=Yd (for this model)= current actual disposable income; C= a + bYd

34
Q

Savings function

A

S= Yd - C= -a + (1-b)Yd

35
Q

Shifts in C-fn

A

Due to changes in WEI: wealth (direct), expectations (direct), interest rate (inverse)

36
Q

Investment function

A

I = I bar (autonomous)

37
Q

Shifts in I-fn

A

Due to changes in ICBC: interest rate (inverse), changes in sales (direct), business confidence (direct)

38
Q

AE function (frugal economy)

A

AE= C + I= (a+bYd) + I bar, shifts due to changes in C and I

39
Q

Equilibrium level of national income (Ye)

A

AE=Y, AE cuts 45° line

40
Q

Stability vs. Equilibrium

A

Stability: if you’re not there, you’re going back; Equilibrium: if you’re there, you’re staying there

41
Q

Inventory adjustment model

A

If E>Y, inventories fall and production increases; If E

42
Q

Garden hose theory in spendthrift economy

A

Y=E=C=(a+bY)

43
Q

Garden hose theory in frugal economy

A

Y=E=C+I=(a+bY)+I bar

44
Q

Bathtub theory in spendthrift economy

A

0=W=J=0

45
Q

Bathtub theory in frugal economy

A

-a + (1-b)Y=S=W=J=I bar

46
Q

Simple multiplier (frugal economy)

A

k= △Ye/△AE (autonomous)= 1/1-z where z=MPSpend=MPC

47
Q

Government purchases

A

(G=G bar)= Government spending - transfer payments + government investment

48
Q

Net tax revenues

A

Yd= Y-net taxes where net taxes= T-TP; T=tY (proportional income tax)

49
Q

Government budget or public savings function

A

money in (T or govt. revenues)-money out (G) to the government

50
Q

Budget surplus, deficit, and balanced budget

A

T>G; T

51
Q

Net export function (NX)

A

money in (autonomous X)-money out (induced M) to the circular flow where M=mY and m=MPM

52
Q

BOT, surplus, deficit

A

X=M, X>M, X

53
Q

Shifts in NX-fn

A

Due to changes in FIRPER: foreign income (direct effect to X which causes parallel shift in NX), Canadian international relative prices (inverse effect to X and direct effect to M which causes rotation), Exchange rate (same as CDN international relative price)

54
Q

Simple multiplier (open economy)

A

k= △Ye/△AE= (1/1-z) where z=MPSpend=b(1-t)-m

55
Q

Garden hose theory in governed economy

A

Y=E=(C+I+G)=(a+bY) + I bar + G bar

56
Q

Garden hose theory in open economy

A

Y=E=(C+I+G+NetX)

57
Q

Bathtub theory in governed economy

A

(-a+(1-b)Y)+tY=S+T=W=J=I bar + G bar

58
Q

Bathtub theory in open economy

A

S(Y)+t(Y)+m(Y)=W=J=I+G+X

59
Q

Balanced budget multiplier

A

△Ybb=△G=△T=1, Y goes up by $1; △Ye=△G*k; △Ye=△T(k-1)

60
Q

Fiscal policy

A

Govt. changes T and/or G to change Ye; G affects AE directly, T affects AE through Yd and C

61
Q

Stabilization policy

A

maintain Y around Y*

62
Q

Expansionary policy

A

In a recessionary gap, increase G and/or decrease T to increase Ye

63
Q

Contractionary policy

A

In an inflationary gap, decrease G and/or increase T to decrease Ye

64
Q

Rate of inflation

A

(CPI current-CPI base)/CPI base x 100

65
Q

Potential output (Y*)

A

Level of output economy would produce if all resources (land, labor, capital, technology and entrepreneurship) were fully employed i.e. maximum output at normal utilization rate of all inputs

66
Q

Price level (P)

A

average level of all prices in the economy expressed as an index number

67
Q

Purchasing power

A

amount of goods and services that can be purchased with a unit of money

68
Q

Interest rate

A

Price paid per dollar borrowed per period of time, expressed either as a proportion or as a percentage

69
Q

Intermediate goods vs. final goods

A

Outputs of some firms used as inputs and others; Outputs not used as inputs by other firms (in the period of time considered)

70
Q

Non-factor payments

A

Indirect taxes (net of subsidies): IBT are taxes on the production and sale of G&S claimed by the government while subsides act as negative taxes, payments from the government to firms

71
Q

Depreciation

A

The reduction in value of an asset - added in GDP to account for the portion of current output that replaces the worn out physical capital (replacement investment)

72
Q

Movements in CPI vs. Movements in GDP deflator

A

CPI measures the change in the average price of consumer goods while GDP deflator reflects the change in the average price of goods produced in Canada

73
Q

Desired aggregate expenditure

A

Sum of desired or planned spending on domestic output by households, firms, governments, and foreigners

74
Q

Desired expenditure

A

What consumers and firms would like to purchase, given their real-world constraints of income and market prices

75
Q

Autonomous (exogenous) expenditures

A

Elements of expenditure that do not change systematically with national income

76
Q

Induced (endogenous) expenditures

A

Any component of expenditure that is systematically related to national income

77
Q

Disposable income (YD)

A

household income - taxes = Y-Net taxes = Y-(T-TP)

78
Q

Saving

A

disposable income not spent on consumption

79
Q

Marginal Propensity to Consume (MPC)

A

Additional inclination to spend out of an additional dollar; MPC= △C/△Y; 0 <= MPC <= 1

80
Q

Two conditions of the major assumption of the simple macro model

A

Demand determines output, P is constant: (1) Firms have excess capacity (2) Firms have monopoly power “price setter,” changing output before price

ECON 102 (3 decks)

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