vigtige ting

Question 1

Consumption:

• equation
• determinants
• slope direction

Answer 1

C = c0 + c1 YD

YD = Y - T
Positive relation between YD and C

c0
Positive relation between c0 and C

c1 (marginal propensity to consume)
Positive relation between c1 and C

Upward sloping (positive relations)

Question 2

Investment:

• equation
• determinants
• slope direction

Answer 2

I = I (Y,i)

Y
Positive relation between I and Y (investment is necessary for a high level of production)

i
Negative relation between I and i (expensive to borrow money => investment goes down)

Question 3

Money demand:

• equation
• determinants
• slope direction

Answer 3

Md = $Y L(i)

i 
negative relation (higher interest rate => people prefer bonds)

i up => move along to the left
i down => move along to the right

$Y
positive relation (higher nominal income => higher level of transactions => increased demand for money)

$Y up => Md shifts right
$Y down => Md shifts left

downward sloping (negative relation between axes: i and Md)

Question 4

Imports:

• equation
• determinants
• slope direction

Answer 4

IM = IM(Y,ε)

Y
Positive relation between imports and domestic income
(increased overall demand for goods)

ε
Positive relation between real interest rate and imports
(higher price of domestic goods in terms of foreign goods, more people wanna import goods)

Question 5

Exports:

• equation
• determinants
• slope direction

Answer 5

X = X (Y*,ε)

Y*
Positive relation between exports and foreign income
(increased overall demand for goods)

ε
Negative relation between real interest rate and imports
(higher price of domestic goods in terms of foreign goods, lower level of exports)

Question 6

Demand for goods in closed economy

Answer 6

Z = C + I + G

Question 7

Demand for goods in open economy

Answer 7

Z = C + I + G + X - IM

Question 8

Autonomous spending

Answer 8

C + I + G

Any increase in autonomous spending, will lead to a bigger increase in output (more than 1:1) due to the multiplier

Question 9

Multiplier

Answer 9

1/(1-c1)

the closer c1 is to 1, the larger the multiplier

Question 10

Demand for domestic goods in open economy

Answer 10

Z = C + I + G + X/ε - IM

Question 11

Demand for bonds

Answer 11

Bd = wealth - demand for money

example
wealth = $50,000
yearly income = $60,000
Md = $Y(0.35-i)

Bd = $50,000 - $60,000(0.35 - i)

Question 12

The interest parity condition (IPC)

i ≈ ?

Answer 12

Domestic interest is equal to foreign interest minus expected appreciation rate of domestic currency

Question 13

The interest parity condition (IPC)

E = ?

Answer 13

E = (1+i)/(1+i*) Ee

Current exchange rate depends on domestic and foreign interest rate and expected future exchange rate (taken as a given)

Question 14

The interest parity condition (IPC)

i goes up and ?

Answer 14

E goes up

Question 15

The interest parity condition (IPC)

i* goes up and ?

Answer 15

E goes down

Question 16

The interest parity condition (IPC)

Ee (expected future exchange rate) goes up and ?

Answer 16

E goes up

Question 17

appreciation

Answer 17

flexible

increased exchange rate

it gets cheaper to buy foreign goods

Question 18

depreciation

Answer 18

flexible

decreased exchange rate

it gets more expensive to buy foreign goods

Question 19

devaluation

Answer 19

fixed

decreased exchange rate

it gets more expensive to buy foreign goods

Question 20

revaluation

Answer 20

fixed

increased exchange rate

it gets cheaper to buy foreign goods

Question 21

wage-setting relation

• function
• determinants
• slope looks

Answer 21

W/P = F(u,z)

u
negative relation between real wage and unemployment
(the higher employment, the higher the wages due to bargaining power - assuming that the price level doesn’t change at the same time)

z
positive relation between real wage and z (bargaining power pushes wages up)

downward sloping

Question 22

price-setting relation

• function
• determinants
• slope looks

Answer 22

W/P = 1/(1+m)

m
negative relation between real wage and mark-up (the higher the prices, the lower the purchasing power)

vertical line

Question 23

WS and PS

if m or z increases?

Answer 23

the intercept of WS and PS = natural level of unemployment

natural level of unemployment increases

m goes up => PS shifts down
z goes up => WS shifts up

Question 24

WS and PS

if m or z decreases?

Answer 24

the intercept of WS and PS = natural level of unemployment

natural level of unemployment increases

m goes down => PS shifts up
z goes down => WS shifts down

Question 25

Phillips curve as a function of unemployment

Answer 25

πt - πte = -∝(ut-un)

Question 26

Phillips curve as a function of output

Answer 26

π - target = ∝/L (Y-Yn)

Question 27

Real exchange rate ε

Answer 27

ε=EP/P*

real exchange rate = (nominal exchange rate * domestic price level)/foreign price level

Question 28

Nominal interest rate

Answer 28

the price of domestic currency in terms of foreign currency

Question 29

Borrowing rate

Answer 29

r + x

real policy rate + risk premium

Question 30

real policy rate

Answer 30

r = i - πe