Econ exam 2
The country of Livonia has an adult population of 100 million. Sixty percent of Livonia's population are employed, but 10% of the people are unemployed. The Labor Force Participation Rate in Livonia is
70%
The MPC plus the MPS must
=1
% change in GDP deflator
fixing prices for base year, focused on all final goods/services
% change in CPI
fixing quantities for base year, narrowly focuses on consumption
Natural rate of unemployment formula
frictional and structural when no cyclical exist
Cyclical unemployment
in between high and low rates, recession but jobs come back
COLA (Cost of living adjustment)
tracks changes in households cost of living to allow comparison of $ amount over time
calculate rate of inflation
((Current CPI-Base CPI)/Base CPI)x100
consumption function
(Co+C1)Yd
saving function
(So+Sz)Yd
labor force participation rate
(labor force/working age pop)x100
employment rate
(number of people employed/labor force)x100
employment to population ratio
(number of people employed/working-age pop)x100
Real Return (Rr)
(rn-i)/(i+1)
If the Consumer Price Index (CPI) for 2007 was 148.3 and 152.5 in 2008, what was the inflation rate between the two years
2.83%
Suppose the real interest rate is 2.1% and the nominal interest rate is 5.4%. Then the inflation rate is
3.3%
Investment spending increases then
AE shift down, decreasing income expenditure equilibrium
AE=
C + I + G + NX
Purpose of Consumtion function and abbreviation
CF. POints show real disposable income on x-axis and real consumption expenditure on y axis. main building block in determining GDP
A survey reveals that on a small island initially 1,000 people have jobs, 250 people are looking for jobs, and 450 people are neither working nor looking for work. Suppose that 150 of the 450 people who weren't looking for work now begin looking for work. There are now 400 people looking for work and 1,000 people working. What happens to the unemployment rate?
It rises to 28.6%
MPS definition
Marginal propensity to save
Calculate MPC
change in consumption/change in Yd
Calculate MPS
change in saving/change in Yd
cpi reflects
changes in the prices of goods and services typicallly purchased by consumers
Price index
current cost as a % or relative to cost of same product during the base period
Other things being equal, expectations of lower disposable income in the future would ________ and shift the consumption function _________
decrease autonomous consumption; down
Yd
disposable income
The labor force is
total of people employed and unemployed
Relation of GDP and Expenditure
increase/decrease together
An increase in the MPC
increases the multiplier
Buying power
investment/CPI
Income-expenditure equilibrium GDP
level of GDP at which GDPequals planned aggregate spending
The purpose of indexing Social Security payments to the CPI is to
maintain the purchasing power of retirees
MPC defenition
marginal propensity to consume
You are a college student who is not working or looking for work. You are
not part of the labor force
Investment multiplier
number of times total income increases corresponding to an increase in investment
frictionally unemployed
people entering and leaving, creation and destruction of jobs
unemployment rate is
percent of the labor force that is unemployed
kenzien model
predict real GDP, short run fluctuations, assume prices are fixed
If money income remains the same, while the average price level doubles, then
real income will fall
Cyclical unemployment rises when
recession
Structurally unemployed
technology or change in location
In the consumer price index of the United States
the current cost of a basket of goods is compared to the base-period cost of the same basket of goods, the calculation of the base-period index is always equal to 100, and the base period is 1982-1984
Inflation can be measured by
the percentage change in the cpi
Real GDP-Aggregate expenditures=
unplanned inventory accumulation
