Econ 313 Final
Unemployment rate
(Number of Unemployed/labor force)*100
Labor Force Participation
(labor force/adult population)*100
Real GDP
-Nominal GDP/GDP deflator -Price stays the same where quantity changes
Fiat money
-When the money is given value by the government -the system that we use in the US
If C=500+.5Y and the production function is Y=50K^.5*L^.5 and K and L= 100 what does C equal?
3000
According to Okun's law studyied in chapter 10 with no change in unemployment, real GDP normally grows by 3 and if the unemployment rate fell by 1% what is the predicted real GDP?
5% increase
Ex-post interest rate
=nominal interest rate-actual inflation
In the Keynes model, what is national income depend on?
AD
Short-run fluctuations in output and employment are called?
Business cycles
Variables that models try to explain are what?
Endogenous
Classical assumptions are most correct when?
In the long run
The rate of inflation is the?
Percentage change in the level of prices
The short run aggregate supply curve shows (positive/negative) relationship between price level and output
Postive
Solow Growth Model Predicts economies will converge if the economies start with the the same what?
Steady state
In a stick price model what happens to the AS when firms do not have flexible prices
The SRAS is horizontal
In the stick price model what happens when when the price is not determined by the AD. What happens to the AS
The SRAS is vertical
Exogenous Variables
The given variables
if a country uses the gold standard uses what type of money
commodity money
Assuming 2 economies are identical in every way except that one was a higher savings rate. According to the Solow growth model in the steady state the country with the higher savings rate will have _____ level of output per worker and ______ growth rate of output per worker as/than the country with the lower savings rate
-Higher -the same
Phillips curve (movement)
-Higher output means lower unemployment -Higher price level means higher inflation
In the AD-AS model in chapter 10 if the short run equilibrium occurs at level of output below the natural rate, then what will happen to price and output in the long run?
-In the long run prices will decrease -In the long run output will increase
According to the theory of liquidity holding the supply of real money balances constant, an increase of income will (increases/decreases) the demand of real money balances and will (increase/decrease) the interest rates
-Increase -Increase
In the IS-LM model when taxation increases in the short run equilibrium what will happen to interest rates and output?
-Output will fall -Interest rates will fall
In the long run what determines the level of total production of goods and services in the economy?
-Quantity of capital -Quantity of Labor -Production technology
CPI Basket price
-quantity stays the same and price changes -CPI Value=Current basket (price/base basket price)*100
Government purchases multiplier
-the amount income changes in response 1$ change in government spending - 1/1-MPC
Tax Multiplier
-the amount income changes in response to 1$ change in taxes - -(MPC/1-MPC)
A rancher sells Mcdonalds a quarter pound of meat for 1$ and then McDonalds then sells it for 2$ what value should be included in the GDP
2$
Ex-ante real interest rate
=nominal interest rate-expected inflation
In the IS-LM model how does a change of income effect the AD
A shift in the AD
In the AD-AS model in chapter 10, short run equilibrium occurs at a combination when?
AD=SRAS
According to classical theory what does national income depend on?
AS
To increase the money supply the federal reserve does what?
Buys bonds
When a firm sells a product out of inventory GDP a) Increases b) decreases c) stays the same
C) stays the same
According to the quantity equation if the velocity of money and the supply of money are fixed and the price level increases then the quantity of goods and services purchases does what?
Decreases
If inflation is 6% and the worker receives a 4% wage increase then the workers real wage what?
Decreases by 2%
When AD curve is drawn with real GDP Y along the horizontal axis and the Price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift how?
Downward and left
Short run refers to
During which prices are sticky and unemployment may occur
In the Keynesian-cross model, if government purchases increase by 250 the equilibrium level of income will what?
Increase by 250 or more
According to the theory of liquidity preference, holding the supply of real money balances constant an increase in income will (increase/decrease) the demand of real money balances and (increase/decrease) the interest rates
Increase. Increase
In the IS-LM model how does a change in price level effect the AD
Movement along the AD
Phillips curves shows (positive/negative) relationship between inflation and unemployment
Negative
An increase in the interest rate will what?
Reduce planned investment because the interest rate is the cost of borrowing to finance investment projects
In the imperfect-information model bases the difference in the short run and the long run aggregate supply curve on?
Temporary misconceptions about prices
In the US who controls the money supply?
The Federal Reverve
Changes in the Fiscal Policy shift what curve?
The IS Curve
Macroeconomics is the study of?
The economy as a whole
Keynesian assumptions are correct when?
The short run
Frictional unemployment
The time it takes for workers to search for jobs
Structural unemployment
The unemployment from wage rigidity and job rationing
According to the Kremerian model, large populations improve living standards why?
There are more people who can make discoveries and contribute to inovation
Endogenous Variables
Variables determined by the model
In the Keynesian Cross model when is the equilibrium level obtained
Y=PE
People use money as store value when?
hold money to transfer purchasing power into the future
A 5% reduction in the money supply will according to most economist, reduce prices 5% when?
in the long run but lead to unemployment in the short run
Classical Dichotomy
is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money
Money Neutrality
is the irrelevance of money supply when determining real variables
In the Solow Growth model in chapter 8 the economy ends of with a steady-state level of capital when?
regardless of the starting level of capital
When there is structural unemployment, the real wage is?
rigid at a level above the market-clearing level
If s is the job separation rate, and f is the rate of job finding. and both rates are constant what is the unemployment rate?
s/(s+f)
How does an increase in the money supply effect the IS-LM
shift right of the LM curve
The natural rate of unemployment is?
the average rate of unemployment around which the economy fluctuates
In a sticky price model the relationship between the output and price level depends on what
the proportion of firms with flexible prices
GDP deflator
the ratio of (nominal GDP/Real GDP)