econ exam 3 study questions
Write the mathematical formula for the quantity equation of money (sometimes called the Quantity Theory of Money) and define each of the four variables. Briefly explain the assumption that is made about two of the variables in the quantity equation that leads macroeconomists to believe that that the Classical dichotomy holds in the long run. Be sure to state which two variables the assumption pertains to.
the quantity theory of money equation M * V= P*Y, the quantity of Monet causes inflation, money and supply are the reason why prices go up
The inflation tax refers to
the revenue a government creates by printing money.
Write the equation for the basic production function that macroeconomists use to understand GDP (Y) in the long run and give a written definition of each variable (5) in the equation.
y= a * f (L,K,H,N), f is the function that represents those 4 inputs come back together to make Y.
Which of the following is an example of menu costs?
Advertising new prices
Which of the following helps to explain why the "inflation fallacy" is a fallacy?
Nominal incomes tend to rise at the same time that the price level is rising, leaving real income unchanged.
The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is explained by the
classical dichotomy.
The traditional view of the production process is that capital is subject to
diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, the money demand curve slopes
downward, because at higher prices people want to hold more money.
Shoeleather costs arise when higher inflation rates induce people to
hold less money. (the value of the dollar changes the longer they have it
what is velocity
how many times was the dollar used within a certain time frame
What is the primary macroeconomic concept that measures the standard of living in a country and how is it defined?
it is measured by real gdp per capita and depends on a countries ability to produce goods and service, how much a countries good and service is produce by productivity.
When the consumer price index increases from 100 to 120
more money is needed to buy the same amount of goods, so the value of money falls
In determining living standards, productivity plays a key role for
nations and individuals
Educated people may generate ideas that increase production. These ideas
produce a return to society from education that is greater than the return to the individual.
Define labor productivity. List two determinants of labor productivity and explain why increases in these determinants contribute to growth in GDP in the long run.
productivity defines the standard of living there are 2 determinants level and growth, because with a high level of increasing growth your going to get high incomes
Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then
the nominal interest rate rises, but the real interest rate does not.
