Midterm Flashcards
Macroeconomic
The study of the entire economy
It’s purpose is to understand the entire economy’s changes that impact us
Exogenous variables
• determined outside of the model
•given
•not calculated by us
Endogenous variables
•variables determined inside of the model
• calculated by us using given information
Nominal variables
Variables measured in current dollars
Not adjusted for inflation
Real variables
Adjusted for inflation
Measured in constant dollars
Flow variables
Variables that represent consistent changes per unit of time
Stock variables
Variables that measure changes in quantity not over a specific period of time
Static models
Doesn’t depend on how much time has passed
Dynamic models
Depends on how much time has passed
Gross domestic product
Final value of goods and services produced in a country in a given time
The four categories GDP consists of:
- Consumption
- Investment
- Government spending
- Net exports
Product expenditure identity
IM+Y=C+G+I+Ex
Y=C+G+I+(EX-IM)
Disposable income identity
Yd=Y-T+TP
Sectorial Deficit Identity
(G-T+TP)+(I+S)+X=0
Inflow-Outflow identity
I+G+TP+EX=S+T+IM
Price index
Overall measure of price level across a variety of goods
Price index examples
CPI
PPI
GDP deflator
Price factor
Price factor = (price index base year)/price index measured year)
Real value (formula):
Real=Nominal x price factor
CPI
Measures the change in price of a market basket of goods and services over time.
Included in GDP
Must include only transactions that are truly exchanges
GDP doesn’t include:
- Secondhand sales
- Transfer payments
- Intermediate goods
- Under the table transactions
What is GDP used for?
GDP is used as a standardized measurement to calculate the size of an economy.
• the percentage change of GDP can tell us the growth of the economy
Recession
2 consecutive quarters of negative economic growth
Depression
4 consecutive quarters of negative economic growth
What does the production function measure?
The production function measured the relationship between inputs and outputs.
Inputs include:
Capital stock
Labor
Technology
Diminishing marginal products
After a certain point continuing to add units of labor does not bring additional units of output
Cobb-Douglass production function
F(K,L,A)= AK^ㅇL^(1-ㅇ)
What does “A” stand for?
Is the measure of technology sometimes called the total factor productivity
Measure of the multiple of production
Marginal product of labor (MPL)
How much additional output do we get when adding one more unit of labor
Marginal product of capital
How much additional output do we get when we add one more unit of capital
Factors of production are:
All the things brought together to aid in the production of goods and services
Knowledge
Capital
Entrepreneurship
Labor
Land
