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Macroeconomics > Test > Flashcards

Test Flashcards

1
Q

An economy’s ______ equals its ______

A

Total income
Total expenditure on goods and services

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2
Q

Which of these is a flow variable?

A

Income

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3
Q

The value added of an item produced refers to:

A

The value of a firm’s output less the value of the intermediate goods that the firm purchase

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4
Q

Real GDP

A

Price of the base year x Number purchased current year

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5
Q

An increase in the price of goods bought only by firms and the government will show up in

A

The GDP deflator but not in the CPI

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6
Q

The labor force participation rate is the percentage of the

A

Adult population that is in the labor force

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7
Q

In computing gross domestic product (GDP)

A

The value of intermediate goods is included in the market price of the final goods

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8
Q

The government purchase component of GDP includes all of these EXCEPT

A

Federal spending on transfer payments

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9
Q

In closed economy with fixed output, when government spending increases

A

Public saving decreases

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10
Q

MPL

A

(1-a)A K^a L^-a

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11
Q

Real rental rate of capital equals

A

MPK

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12
Q

MPK

A

aA K^a-1 L^1-a

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13
Q

Y = A K^a L^1-a

A increases by 2%, in equilibrium this would

A

Increase the real wage and the share of labor income in total income each by 2%

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14
Q

Y = A K^a L^1-a

Number of workers L increases, the real rental rate of capital

A

Real rental rate of capital = MPK
MPK increases and the Real wage (MPL) decreases

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15
Q

Y = A K^a L^1-a

a = 0.3
A = 100

L and K increase by 10%

A

Real rental rate of capital increases by 10%

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16
Q

Y = 5000
C = 1000 + 0.3(Y-T)
I = 1500 - 25r
T = 1000
G = 1500

In equilibrium, the value of r is ___ percent

A

Y = C + I + G
5000 = 1000 + 1200 + 1500 - 25r + 1500
5000 = 5200 - 25r
25r = 200
r = 8

8

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17
Q

Y = 5000
C = 1000 + 0.3(Y-T)
I = 1500 - 25r
T = 1000
G = 1500

Equilibrium value of consumption is

A

C = 1000 + 0.3(Y-T)
C = 1000 + 0.3(5000-1000)
C = 1000 + 1200
C = 2200

2200

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18
Q

Y = 5000
C = 1000 + 0.3(Y-T)
I = 1500 - 25r
T = 1000
G = 1500

Suppose G increases (leaving Y and T constant). Then national savings

A

National Savings = Y - C - G

Decreases and the real interest rate increases

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19
Q

Y = 5000
C = 1000 + 0.3(Y-T)
I = 1500 - 25r
T = 1000
G = 1500

Suppose instead that the marginal propensity to consume decreases. Then, national savings

A

Increase and the real interest rate decreases

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20
Q

The money supply consists of

A

Currency plus demand deposits

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21
Q

What is leverage ratio at the bank?

Assets
Reserves 10,000
Loans 100,000
Securities 40,000

Liabilities and Equity
Deposits 100,000
Debt 20,000
Equity 30,000

A

Leverage ratio = assets / capital

Assets = reserves + loans + securities = 150,000
Capital = equity 30,000

Leverage ratio = 150,000 / 30,000 = 5

5

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22
Q

Ratio of reserves to deposits (rr) increases
Ratio of currency to deposits (cr) is constant
Monetary base (B) is constant
The…

A

Money supply = mB

m = cr + 1 / cr + rr

Money supply decreases

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23
Q

M / P = kY, when demand for money parameter k is large the velocity of money is ____ and money changes hands ____

A

Small, infrequently

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24
Q

If the real interest rate declines by 1% and the inflation rate increases by 2%, the nominal interest rate implied by the Fisher equation

A

i = r + pi
Nominal int.rate = Real int.rate + pi

Increases by 1 percent

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25
Q

The ex post interest rate will be greater than ex ante real interest rate when the:

A

ex ante = i - Epi
en post = i - pi

pi has to be smaller than Epi,

Actual interest rate is less than the expected rate of inflation

26
Q

The costs of unexpected inflation, but not of expected inflation, are

A

The arbitrary redistribution of wealth between debtors and creditors

27
Q

The % change in the nominal exchange rate = the % change in the real exchange rate + the

A

Foreign inflation rate - domestic inflation rate

28
Q

In small open economy, if consumer confidence falls and consumers decide to save more, then the real exchange rate

A

Falls and net exports rise

29
Q

s is the rate of job separation
f is the rate of job finding
Both rates are constant

The steady state unemployment rate is approximately

A

s / (s+f)

30
Q

When the real wage is above the level that equilibrates supply and demand

A

The quantity of labor supplied exceeds the quantity demanded

31
Q

Y = A K^0.5 L^0.5
K = 16
L = 100
Real minimum wage = 4
A = 18

The unemployment rate is ___%

A
32
Q

Y = A K^0.5 L^0.5
K = 16
L = 100
Real minimum wage = 4
A = 18

At what minimum value of Aa would the minimum wage not lead to unemployment?

A

MPL = (1-a)A K^a L^-a
MPL = 0.5A x 4 x 1/10
A = 20

33
Q

Efficiency wage theories suggest that firm may pay workers more than the market-clearing wage for all of these reasons except:

A

Reduce the firm’s wage bill

34
Q

Per worker production is y = k^0.5
y output per worker
k capital per worker
10% of capital depreciates per year
Neither population growth nor technological progress

Saving rate (s) is 0.4 consumption per worker in the steady state is___?

A

Neither population growth nor technological progress —> delta k equals 0

delta k = sf(k) - k depreciation
0 = 0.4 x k^0.5 - 0.1k
0.4k^0.5 = 0.1k
k^0.5 = 0.4 / 0.1
k = 16

C = (1-s)y
C = 1-0.3 x 4 = 0.6 x 4 = 2.4
C = 2.4

35
Q

Per worker production is y = k^0.5
y output per worker
k capital per worker
10% of capital depreciates per year
Neither population growth nor technological progress

Golden Rule: Consumption per worker in the steady state is maximized for a savings rate (s) of

A

1/2

36
Q

Suppose the savings rate increased to a value above the golden rule level. This would lead to

A

Increase in steady state real wage

37
Q

GDP growth declines, investment spending typically ___ and consumption spending typically ____

A

Decreases, decreases

38
Q

Okun’s law is the _____ relationship between real gross domestic product (GDP) and the ____

A

Negative, inflation rate

39
Q

The natural level of output is

A

The level of output at which the unemployment rate is at its natural level

40
Q

In this graph assume that economy starts at point A, and there is a favorable supply shock that does not last forever. In this situation, point ___ represents short-run equilibrium and the point ___ represents long-term equilibrium

A

Favorable supply shock —> SRAS shifts down
New equilibrium for short run —> where new SRAS and AD intersect

Long run —> A because shock doesn’t last forever

E ; A

41
Q

Keynesian Cross

Firms are producing at level Y3, then inventories will___, inducing firms to _____ production.

where there is a gap between Actual Expenditure and Planned Expenditure. Y3 directly at PE line, and AE line before

A

Rise, decrease

42
Q

Keynesian cross analysis

MPC = 2/3. Suppose the government simultaneously increases its purchases (G) and its taxes (T) by the same amount, 10

The resulting change in equilibrium income is

A
  1. DeltaY / DeltaG = 1 / 1 - MPC
    DeltaY / 10 = 1 / 1 - 2/3 = 30
  2. DeltaY / DeltaT = -MPC / 1 - MPC
    DeltaY= -20

Change in Y = 30 - 20 = 10

43
Q

Keynesian cross analysis

MPC = 2/3. Suppose the government simultaneously increases its purchases (G) and its taxes (T) by the same amount, 10

The resulting change in equilibrium consumption is

A

DeltaC = MPC ( DeltaY - DeltaT )
DeltaC = 2/3 (10-10) = 0

Change in C = 0

44
Q

Keynesian cross analysis

MPC = 2/3. Suppose the government simultaneously increases its purchases (G) and its taxes (T) by the same amount, 10

The resulting change in equilibrium (national) saving is

A

0

45
Q

IS-LM fiscal policy
Decrease in government spending generated new equilibrium at…

A

Shifted IS curve down, and where it now crosses LM curve

r3, Y2

46
Q

Using the IS-LM analysis, if the LM curve is not horizontal, the multiplier for an increase in government spending is ____ for an increase in government purchases using the Keynesian-cross analysis

A

Smaller than the multiplier

47
Q

The Pigou effect suggests that falling prices will increase income because real balances influence ___ and will shift the ____ curve

A

Consumer spending, IS

48
Q

What of these policy actions would be considered unconventional monetary policy?

A

Forward guidance

49
Q

Economy in the short-run IS-LM framework

Y = C + I + G
(M/P) = Y - dr

G = 700
M = 3000

Equilibrium level of income is…

A
  1. Just plug everything in Y function first
  2. Then in (M/P) and find r
  3. Then plug r in Y function
50
Q

Economy in the short-run IS-LM framework

Y = C + I + G
(M/P) = Y - dr

G = 700
M = 3000

The equilibrium interest rate is…

A
  1. Just plug everything in Y function first
  2. Then in (M/P) and find r
51
Q

Economy in the short-run IS-LM framework

Y = C + I + G
(M/P) = Y - dr

G = decreased to 600
Bank wants to simultaneously adjust M in order to keep equilibrium income constant at the value calculated before. The corresponding change in the money supply M is…

A
  1. Already know Y, so just calculate r
  2. Calculate (M/P) function what is M
  3. Now found M - before M
  4. Answer is 2000
52
Q

Economy in the short-run IS-LM framework

Y = C + I + G
(M/P) = Y - dr

The interest rate associated with the equilibrium from the last question is…

A

Already know Y, so just calculate r

r = 15

53
Q

The basic aggregate supply equation implies that output exceeds natural output when the price level is…

A

Greater than the expected price level

54
Q

AD-AS Shifts

Long run equilibrium at A, price level P1.

Unexpected monetary contraction shifts aggregate demand from AD1 to AD3.

Short-run nonneutrality is represented by the movement from:

A

New crossing with AS curve, cuz AS remains the same

A to G

55
Q

The assumption of adaptive expectations for inflation means that people will form their expectations of inflation by

A

Basing their opinions on recently observed inflation

56
Q

In the case of demand-pull inflation, other things being equal

A

The inflation rate rises but the unemployment rate falls

57
Q

The time between a shock to the economy and the policy action responding to that shock is called the:

A

Inside lag

58
Q

All of these could be considered automatic stabilizers EXCEPT

A

Discretionary changes in taxes

59
Q

A time inconsistency problem in macroeconomic policy can occur when the policymaker…

A

Changes stated policy because it benefits their current circumstances at the expense of public trust

60
Q

Holding other factors constant, the ratio of government debt to gross domestic product (GDP) can decrease as a result of any of these changes EXCEPT

A

Decrease in tax revenues

61
Q

The logic of Ricardian Equivalence implies that

A

Tax cuts do not influence consumer spending but changes in government spending do so

Macroeconomics (8 decks)

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