Interm Macro Exam 1 - Review
Variable determined in the model
Endogenous
Variable determined outside the model
Exogenous
To avoid double counting in the computation of gross domestic product (GDP), GDP includes only the value of _____ goods.
Final
Are goods that are used to consume
Final Goods
In the long run, prices are ______
Flexible
A person's annual savings:
Flow
The govt budget deficit:
Flow
Government spending
G
the total market value of all final goods and services produced annually in an economy
GDP
a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
GDP deflator
Intangible items purchased by consumers.Examples: dry cleaning, air travel
services
Models are used to:
show relationships, explain behavior, and devise policies
In the short run, prices are ______
sticky
An assumption of _____ is more plausible for studying the short-run behavior of the economy, while an assumption of _____ is more plausible for studying the long-run, equilibrium behavior of the economy.
sticky prices; flexible prices
A quantity measured at a point in time
stock
The amount of capital in an economy is a(n) _____, and the amount of investment is a(n) _____.
stock; flow
The assumption that the factor's supply (supply of K or L) is fixed will imply that the factor's:
supply curve is vertical
All of these EXCEPT _____ are important macroeconomic variables.
the marginal rate of substitution
The price received by each factor of production is determined by:
demand and supply of factors
With a Cobb-Douglas production function, the share of output going to labor:
does not depend on the amount of labor in the economy
wage income equation
hourly wage x number of hours worked
What is considered labor?
the physical and mental efforts
In a Cobb-Douglas production function, the marginal product of capital will increase if:
the quantity of labor increases
Gross national product (GNP) equals gross domestic product (GDP) _____ income earned domestically by foreigners _____ income that nationals earn abroad.
minus; plus
R =
nominal rental rate
W =
nominal wage
Unemployment rate
number of employed / labor force x 100
An economy's factors of production and its production function determine the economy's:
outputs of goods and services
A fixed-weight price index like the consumer price index (CPI) _____ the change in the cost of living because it _____ take into account that people can substitute less expensive goods for ones that have become more expensive.
overestimates; does not
Private saving equation
(Y-T)-C
y = c (y - t) + I (r) + G
Aggregate demand
a subset of the marginally attached workers, have given a job-market-related reason for not currently looking for a job.
Discouraged workers
An increase in r might also reduce saving (increase consumption)
Income effect
Slope of the consumption function
MPC
The change in C when disposable income increases by $1
Marginal propensity to consume
States that each each factor input is paid by the factor prices -- its marginal product
Neoclassical theory of distribution
not employed, not looking for work
Not in the labor force
The government dept:
Stock
The unemployment resulting from real wage rigidity and job rationing
Structural unemployment
Public saving
T-G
Production function
Y = F(K,L)
National saving
Y-C-G
Cobb-Douglas production function
Y=AK^aL^1-a
Real gross domestic product (GDP) is a better measure of economic well-being than nominal GDP because real GDP:
measures changes in the quantity of goods and services produced by holding prices constant.
the production of goods and services valued at current prices
nominal GDP
A graph of the rate of inflation in the United States over the twentieth century shows:
periods of deflation mixed with positive rates of inflation before 1955 but only positive rates of inflation after 1955.
P =
price of output
A person's wealth:
stock
An increase in the price of goods bought by firms and the government will show up in:
the GDP deflator but not in the CPI
In Chapter 3's model, the supply and demand for goods and services are balanced by:
the interest rate
What is considered capital?
tools, machines, structures
total expenditure = __________
total income
C = C(Y - T)
consumption function
Components of Aggregate Demand
consumption, investment, government spending
House holds divide their disposable income between _______ and _______
consumption; saving
The real interest rate is the ___________
cost of borrowing
Periods of falling prices
deflation
Total income minus total taxes
disposable income
Assume that govt spending & total taxes are _________
exogenous
the division of income between capital and labor
factor shares
In a boom, the actual unemployment rate _________ the natural rate
falls below
caused by the time it takes workers to search for a job
frictional unemployment
Real GDP per capita _______ over time but growth rate is not _______
grows; steady
The demand for loanable funds comes from ______
investment
I = I (R)
investment function
There are two reasons why the job finding is not instantaneous:
job search, wage rigidity
Wages depend on ________ productivity
labor
The extra output the firm can produce using an additional unit of labor (holding other inputs fixed):
marginal product of labor
persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Persons notin the labor force.
marginally attached workers
The average rate of unemployment around which the economy fluctuates
natural rate of unemployment
3 Types of Saving
private, public, national
F =
rate of job finding
The 3 Most Important Indicators
real GDP, inflation rate, unemployment rate
R denotes the __________
real interest rate
R/P =
real rental wage
W/P =
real wage
cost =
real wage
Each firm hires labor up to the point where ____________
real wage equals marginal product of labor
In a recession, the actual unemployment rate __________ the natural rate
rises above
steady state condition equation
s x e = f x u
changes in the composition of demand among industries or regions—Cause of Frictional unemployment
sectoral shifts
the labor market is in ____________ if the unemployment rate is constant
steady state
An increase in r makes saving more attractive and increases the reward for postponing consumption
substitution effect
In the U.S. economy today (2022), real gross domestic product (GDP) per person, compared with its level in 1900, is about:
ten times as high.
An increase in the price of imported goods will show up in:
the CPI but not in the GDP deflator.
Shows the relationship between quantity demanded and price, other things equal
Demand Curve
Which is more severe: recession or depression?
Depression
Goods that last a long time. Examples: cars, home appliances
Durable goods
Total income earned by the nation's factors of production, regardless of where located
GNP
What is GNP?
Gross National Product
the percentage change in the overall level of prices
Inflation rate
Goods not consumed for their own sake but are used in the production of other goods
Intermediate goods
I
Investment
Spending on newly produced capital, a physical asset used in future production
Investment
the amount of labor available for producing goods and services
Labor force
Simplified versions of more complex realities with irrelevant details stripped away
Macroeconomic models
An assumption that prices are flexible and adjust to equate supply and demand
Market Clearing
Net exports
NX
measures these values using current prices
Nominal GDP
GDP deflator equation
Nominal GDP/Real GDP x 100
Goods that last a short time. Examples: food, clothing
Nondurable goods
Shows the relationship between quantity supplied and price, other things equal
Supply Curve
2 ways to think about GDP:
Total expenditure on domestically produced final goods/services & total income earned by domestically located factors of production
Not employed but looking for a job
Unemployed
The value of output minus the value of the intermediate goods used to produce that output
Value added
Compared with real gross domestic product (GDP) during a recession, real GDP during a depression:
decreases more severely.
Macroeconomics is the study of the:
economy as a whole.
Working at a paid job
employed
Macroeconomic models are used to explain how _____ variables influence _____ variables.
exogenous; endogenous
Net exports equation
exports - imports
the prices per unit firms pay for the factors of production
factor prices
Technology is _______
fixed
A quantity measured per unit of time
flow
The unemployment rate:
has never been 0 in the U.S.
When saving (the supply of loanable funds) increases as the interest rate increases (i.e. we have a upward sloping saving curve), an increase in investment demand results in a _____ real interest rate and _____ in the quantity of investment.
higher; an increase
An example of an imputed value in the gross domestic product (GDP) is the: (Hint: Related to the required reading material "Rules for computing GDP".)
housing services enjoyed by homeowners
In Chapter 3' model, a decrease in the real interest rate could be the result of a(n):
increase in taxes
L =
labor
labor force participation rate
labor force / adult pop. x 100
According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, workers should experience high rates of real wage growth when:
labor productivity is growing rapidly
if T < G, T - G is negative then:
budget deficit
if T > G, T - G is positive then:
budget surplus
K =
capital
if T = G, T - G is zero then:
balanced budget
U =
unemployed
U/L =
unemployment rate
he failure of wages to adjust to a level at which labor supply equals labor demand
wage rigidity
Disposable income equation
y - t
CPI equation
100 x (cost of basket in current year/cost of basket in base year)
If bread is produced using a constant returns to scale production function, then if the:
amounts of equipment and workers are both doubled, twice as much bread will be produced.
marginal product of labor =
benefit
The two MOST important factors of production are:
capital and labor
Changes in nominal GDP can be due to:
changes in prices and quantities
C
consumption
Recessions are associated with:
unusually high unemployment
During the period between 1900 and 2000, the unemployment rate in the United States was highest in the: (Hint: The unemployment rate peaked during the Great Depression.)
1930s
ratio of nominal consumer spending to real consumer spending
Personal consumption expenditure
National income accounts identity
Y=C+I+G+NX
a measure of the overall cost of the goods and services bought by a typical consumer
consumer price index
In the national income accounts, the purchases of durables, nondurables, and services by households are classified as:
consumption
The value of all goods and services bought by households, including
consumption
When some iPads are produced but unsold this year and put away for the future sale, they are called:
investment in inventories
Government spending excludes __________
transfer payments
