Econ Test 1
Imagine a two-good economy where the quantity of the goods produced is unchanged over time, but where prices have increased. Then, in the most recent year, real GDP will be
the largest number when using the Paasche index.
Recently, the largest share of GDP is
consumption
What are the powers raised to in steady state
investment rate is raised to the power of .5, the labor force to the power of 1, and the productivity parameter to the power of 1.5. Thus, if the magnitudes of the increases are identical, the productivity parameter will have the largest impact on output in steady state.
exogenous variable
A component of an economic model that changes over time in an exogenous fashion.
A construction company produces a $200,000 house using $50,000 worth of wood and steel in addition to $50,000 of labor hours. The value added by the construction company is
$150,000.
Historically, labor's share of GDP has been relatively stable at approximately ______ of GDP.
2/3
Consumption accounts for ____ % of GDP
70%
An increase in the depreciation rate causes the depreciation curve to
pivot upward
Trade balance is ____
Exports minus imports
Rule of 70=
70/growth is the doubling
parameter
A part of an economic model that stands for a particular number. Examples include the investment rate in the Solow model and the sensitivity of a central bank's monetary policy rule to inflation. We often study one-time changes in a parameter value to see how the economy responds. (page 9)
In part, macroeconomists study individual behavior and microeconomic theories to create theories of aggregate economic activity.
True
Which of the following counts as investment?
You buy a new house.
The difference between a parameter and an exogenous variable is that
a parameter is fixed over time, while an exogenous variable is allowed to change over time.
Expenditure approact to GDP
GDP=Consumption+Investment+Government Purchases+Net Exports
Parameters and exogenous variables are
Inputs
In most rich countries, inflation has ___ relatively since the 1980s.
Low
endogenous variable
One of the "unknowns" or outcomes of a model. Examples include the level of output in the Solow model and the level of inflation in the short-run model. To solve a model is to solve for the endogenous variables as a function of the parameters and exogenous variables.
Exogenous Variables are
Outputs
The difference between an exogenous and an endogenous variable is that:
an exogenous variable is an input to the model, while an endogenous variable is an outcome of the model.
Nominal GDP
Price Level*real GDP
Which of the following is NOT an example of capital?
Screws and bolts used for making cars at an automobile factory
Which of the following does NOT increase the U.S. GDP?
The U.S. government increases social security payments.
Over the last one hundred years, potential output has
been relatively equal to actual output except for the Great Depression era.
the growth rate of per capita GDP is the
growth rate of GDP minus the growth rate of population, which in this example is 0.
When comparing shares of consumption in GDP it is best to use ( ___ ) variables. When comparing real rates of economic growth it is best to use ( ___ ) variables.
nominal; chain-weighted
average annual growth formula
p59
Macroeconomics is the study of
people and firms and how their interactions through markets determine the overall performance of the economy.
Potential output is a measure of
per capita GDP in the future
national income accounting
production equals expenditure equals income
largest increase in steady-state output?
productivity parameter
The Solow model helps us explain why
some countries are richer than others are (different parameters) and why growth rates differ (transition dynamics). The Solow model does not generate long-run economic growth because the economy rests in steady state
constant growth appears as a
straight line
Value Added GDp
the amount of new value a firm creates in production equal to total revenue less the cost of intermediate foods that are used along the way. For example, the value added by an automobile manufacturer is not the total value pf the cars that are created, but rather this value less the amount paid for steel, tires, and other parts.
If net investment is negative
the economy is above its steady state and growth of output is negative.
Under national income accounting, GDP equals
the goods produced in the economy. the income earned in the economy. the total purchases in the economy.
Starting from steady state, a permanent increase in the rate of depreciation in the Solow model causes
the growth rate of output to fall temporarily and the level of GDP to fall permanently.
An economy starts in steady state. A war causes a massive destruction of the capital stock. This shock will cause
the growth rate of output to rise initially as the economy begins to converge to the old steady state.
The percentage change in nominal GDP is ____
the inflation rate plus the percentage change in real GDP.
In the labor market model, an endogenous variable is
the wage rate.
Economic profits are only positive if
there is some market power that allows firms to charge price above marginal cost.
Historically, labor's share of GDP has been relatively stable at approximately _____ of GDP.
two-thirds