Macro Midterm 1

If your nominal wage in July was $6,000 and the CPI was 120, what was your real wage in July?

$5,000

How do you calculate GDP growth rate

(GDP current period-GDP last period/GDP last period) x 100%

How do you calculate real wage rate?

(Nominal wage/CPI) x 100%

How do you calculate unemployment rate

(number of people unemployed/labor force) x 100

What ideas apply to the neoclassical growth theory?

-The rate of technological change influences the rate of economic growth -Technological change promotes saving and investment -Convergence of economic growth rates across countries

Liquidity is the

ease with which an asset can be converted into a means of payment with little or no loss of value

A central proposition of the new growth theory is that

knowledge is not subject to diminishing returns.

How do you calculate GDP deflator

nominal GDP/real GDP

What are unemployed people

people who are unemployed but actively seeking work

Factors that influence labor productivity include

physical capital, human capital, and technology

The "double coincidence of wants" problem is

resolved by the use of money

What categories fall under assets?

securities (shares, bonds), loans, reserves

What is the labor force

sum of the people who are employed and unemployed

Gross domestic product (GDP) is

the total value of all final goods and services produced in a country during one year

The ______ is the total number of people aged 16 years and older (and not in jail, hospital or institutional care) while the _____ is the number of people employed and the unemployed.

working-age population; labor force

How do you calculate real GDP

year 1: (Q1 x P1) + (Q2 x P2) year 2: (Q3 x P1) + (Q4 x P2)

How do you calculate nominal GDP

year 1: (Q1 x P1) + (Q2 x P2) year 2: (Q3 x P3) + (Q4 x P4)

In an economy, 23 million people are employed and 2 million are unemployed, but 5 million part-time workers would prefer full-time work. What is the unemployment rate?

8 percent

ABC news in Australia reported that the average annual wage in 2008 was $13,308. To calculate the real wage in Australia, you would need to know

Australia's price level in 2008.

How do you calculate inflation rate

CPI or deflation rate: (current year-last year/last year) x 100%

The calculation of the final goods and services sold in an economy would NOT include

General Motor's purchases of tires for new automobiles

What is the role of profits of the new growth theory?

In the new growth theory, the role of profits is that they are the driving force in the growth of real GDP per person, because the choices that people make are typically in the pursuit of profit

If you use $500 of currency to make a deposit in a saving deposit

M1 decreases but M2 is unchanged

Comparing M1 and M2 we know that

M2 is larger because it contains M1 and some time deposits

Suppose that two countries have access to the same engineering and managerial knowledge, but they are growing on different paths for many decades. What could explain the permanent gap in their real GDP per capita?

One of the countries has relatively higher startup costs to open a new business

"Decreasing marginal returns to capital imply that economic growth cannot be driven by capital accumulation alone." Is this true of false? Explain.

This is true. Decreasing marginal returns to capital means the more capital you input into the economy, the less additional output you will gain from it. Marginal returns to capital will be decreasing. When capital accumulates to a certain level, there will be very little returns to capital. So the economic growth can't be driven by capital accumulation alone.

What would a Neo-classical growth theorist say about the effect of the tsunami on the Acre's growth path.

With no tsunami Acre would have been on a certain growth path determined by different factors in their economy. When the tsunami hits, a significant amount of capital is destroyed which immediately lowers real GDP per person (Imagine all of the factories on the east coast of the U.S. were destroyed, this would logically lower our production, which means GDP goes down). With a lower level of capital stock, the remaining capital in Acre is more productive (because the decreasing marginal returns works in the opposite direction too!) and the return on it is higher. Hence, the economy starts to accumulate capital, which implies that the growth rate following the tsunami is higher than the growth rate experienced pre-tsunami. However, due again, to decreasing marginal returns, growth rate will decrease as we accumulate more and more capital, eventually reaching the pre-tsunami growth path.

What is classical growth theory

a theory of economic growth based on the view that the growth of real GDP per person is temporary and that when it rises above subsistence level, a population explosion eventually brings it back to subsistence level

Discouraged workers _______ counted as officially unemployed because they _______.

are not; are not actively seeking work

On any bank balance sheet

bank capital should be reported under liabilities

Define business cycle

business cycles are the periodic but irregular up and down movements of total production and other measures of economic activity

What does M2 consist of

consists of M1 plus time deposits, savings deposits, money market mutual funds, and other funds

What does M1 consist of

currency and travelers checks plus checking deposits owned by individuals and businesses

What categories fall under liabilities?

deposits, borrowings, bank capital