Unit 1

Question 1

Labor Input

Answer 1

The total number of hours worked in the economy.

Question 2

The Determinants of economic growth

Answer 2

Labor (N), Capital (K), and Technology (A)

Question 3

Production Function

Answer 3

Question 4

Balanced Growth Investment (I)

Answer 4

I= n x K
Occurs when Labor and Capital grow at the same rate

Question 5

Output per Worker

Answer 5

Question 6

Consumption Function

Answer 6

Question 7

Income Identity

Answer 7

Question 8

Autonomous Consumption

Answer 8

Question 9

Disposable Income

Answer 9

Question 10

Income-Spending Model w/o NX

Answer 10

Question 11

Income-Spending Model w/ NX

Answer 11

Question 12

Factor that shifts a spending.

Answer 12

1. An increase (decrease) in net worth (assets - liabilities) causes a (autonomous consumption) to rise (fall).

Question 13

Factors that shifts I spending (2)

Answer 13

Expectations of higher (lower) Y in the future increases (decreases) capital demand in the future, which causes I to rise (fall).

Lower (higher) interest rates decrease (increase) borrowing costs for investment goods so I rises (falls).

Question 14

Factors that shift NX (2)

Answer 14

An increase (decrease) in foreign income causes X to rise (fall) because foreigners have more (less) money to spend on U.S. exports.

A lower (higher) exchange rate makes U.S. goods less (more) costly overseas and foreign goods more (less) costly in the U.S. so X rises (falls) and IM falls (rises).

Question 15

A permanent increase in the amount of labor used in the production of technology will lead to a

Answer 15

A permanent increase in the growth rate of output but a temporary increase in labor supply growth.

Question 16

In the long run, a decline in government spending’s share of output causes

Answer 16

Investment and government savings to rise and the nominal interest rate to fall.

Question 17

GDP

Answer 17

The market value of all final goods and services produced within a country in a given year (or other specified time period).

Question 18

Okun’s Law

Answer 18

Question 19

In a market where firms operate according to the efficiency wage theory, we would expect that

Answer 19

the level of unemployment will be lower.

Question 20

Money S/D and the Interest Rate Theory

Question 21

Solow Model, explanation of long-run growth rate of capital = labor

Question 22

Solow Model Graph

Question 23

Growth Accounting Formula

Answer 23

delta%(Y) = delta%(A) + delta%(K)^(1/3) + delta%(N)^(2/3)

Question 24

Income Spending Graph with Variable Net Exports

Answer 24