Econ exam 2

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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


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