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ECON3120-IntMacro > Test 2 > Flashcards

Test 2 Flashcards

1
Q

Which market determines the real wage and employment?

A

labor market

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2
Q

In the equation that describes the production function, and increase in total factor productivity is represented by

A

an increase in A

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3
Q

The marginal product of capital is measured by ____.

A

the slope of the line tangent to the production function relating output and capital

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4
Q

An increase in the real wage would result in a movement ____

A

along the labor demand curve, causing a decrease in the number of workers hired by the firm.

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5
Q

A temporary adverse supply shock that reduces productivity affects the labor market by

A

shifting the labor demand curve to the right.

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6
Q

The level of output that firms in the economy supply when wages and prices have fully adjusted is known as

A

full-employment output

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7
Q

unemployment rate =

A

total available force / labor force unemployed

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8
Q

What are the factors of production?

A

K=Capital & N=Labor

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9
Q

What is the production function equation?

A

Y=AF(K,N);

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10
Q

The shape of the production function slopes (upward/downward)?

A

slopes upward

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11
Q

What is the marginal product of capital equation?

A

MPK = change in Y / change in X

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12
Q

What is the marginal product of labor equation?

A

MPN = change in Y / change in X

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13
Q

What does the MPN measure?

A

benefit of employing one additional worker in terms of extra output

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14
Q

What is the marginal revenue product of labor equation?

A

MRPN = P X MPN

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15
Q

What does MRPN measure?

A

MRPN (marginal revenue of product of labor) measures the extra revenue produced by employing one additional worker

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16
Q

What is the symbol for the nominal wage?

A

W = nominal wage

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17
Q

What is the real wage?

A

the wage measured in terms of units of output

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18
Q

What is the real wage equation?

A

real wage (w) = W (nominal wage) / P (price of output)

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19
Q

a decrease in the real wage _____ the amount of labor demanded?

A

raises

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20
Q

an increase in the real wage ______ the amount of labor demanded

A

decreases

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21
Q

what is the name is the graph showing the relationship between the amount of labor demanded by a firm and the real wage that the firm faces?

A

labor demand curve

22
Q

define the aggregate demand for labor

A

aggregate demand for labor is the sum of the labor demands of all firms in the country

23
Q

define the aggregate supply of labor

A

aggregate supply of labor is the sum of labor supplied by everyone in the economy

24
Q

define leisure (in economy terms)

A

all off-the-job activities

25
Q

an increase in the real wage _____ the benefit of working an additional hour and thus tends to make the worker _______ more labor?

A

…real wage raises the benefit …… make the worker want to supply more labor

26
Q

what is the substitution effect of a higher real wage?

A

tendency of workers to supply more labor in response to a higher reward for working

27
Q

the aggregate amount of labor supplied _____ in response to a temporary increase in the real wage, but _____ in response to a permanent increase in the real wage

A

rises; falls

28
Q

The desire to have a relatively smooth pattern of consumption over time is known as the

A

consumption-smoothing motive

29
Q

An increase in expected real interest rates would probably cause desired national saving to rise because

A

the increased return makes saving more attractive.

30
Q

The substitution effect of the real interest rate on saving

A

reflects the tendency to reduce current consumption as the real interest rate increases.

31
Q

The expected real after-tax rate of return on saving is the after-tax nominal rate of return minus expected

A

inflation.

32
Q

The yield curve shows the relationship between _____ and _____.

A

maturity; interest rate

33
Q

The Ricardian equivalence proposition says that

A

a budget deficit caused entirely by a current tax cut has no effect on the economy.

34
Q

When firms carry out new investment, the user cost of capital

A

remains constant as the amount of capital increases.

35
Q

In calculating the tax-adjusted user cost of capital, the user cost of capital is

A

divided by (1 – tax rate).

36
Q

An adverse supply shock that reduces the future marginal product of capital would cause a firm’s desired capital stock to _____ and the firm’s desired investment to _____.

A

decline; decline

37
Q

The level of capital stock increases

A

if gross investment exceeds depreciation.

38
Q

Your firm has capital stock of $15 million and a depreciation rate of 10%. Gross investment is $2.5 million. How much is net investment?

A

$ 1.0 million

39
Q

A lump-sum increase in current taxes would cause interest rates to

A

fall if Ricardian equivalence did not hold.

40
Q

A reduction in government spending will shift the

A

saving curve to the right.

41
Q

user cost equation

A

UC = (r + d)Pk

42
Q

What are major determinants of consumer spending

A

current income, wealth, govt purchases, expected future income, real interest rate, taxes

43
Q

______ relationship between consumption and current income

A

positive

44
Q

______ relationship between consumption and real interest rate.

A

negative

45
Q

What is Okum’s rule of thumb?

A

whenever the unemployment rate goes up by 1% there is a 2% drop in the growth of output for the economy

46
Q

What is frictional unemployment?

A

between jobs, but just due to searching. jobs are available

47
Q

Wat is structural unemployment?

A

mismatch between job skills of unemployed workers and skills req’d by employers

48
Q

What is cyclical unemployment?

A

fluctuation in aggregate demand for good and services in economy.

49
Q

What factors determine investment spending?

A

real interest rates, effective rate on capital, tech changes, future marginal product of capital

50
Q

Classical model deals with _____.

A

supply side (how goods and services are produced)

51
Q

What two forces determine level of unemployment?

A

demand and supply

52
Q

Investment spending accounts for about ___% of GDP

A

15%

ECON3120-IntMacro (10 decks)

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