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)