Book: The Goods Market

Question 1

How des demand production and income affect each other

Answer 1

Production is affected by demand which is affected by income which is a affected by production

Question 2

In the short run what determines output

Answer 2

Demand

Question 3

What is synonymous to output in evonomics

Answer 3

Production

Question 4

What does government spending not include in gdp

Answer 4

Government transfers such as medicare, social security payments or interest payments of government debt

Question 5

What Investments are included in the gdp

Answer 5

Non residential investments which are the purchase by companies of non current assets and residential investments which are purchases of housing

Question 6

What is another wird for net exports

Answer 6

Trade balance

Question 7

What is inventory investment

Answer 7

The difference between sales and the production in a year

Question 8

How is demand calculated

Answer 8

Z = Y = C+I+G+X-Im, consumption investment government spending and trade balance

Question 9

What is a trade surplus

Answer 9

Export > Import

Question 10

What is a trade deficit

Answer 10

Import > Export

Question 11

How does one calculate inventory investment

Answer 11

Production - Sales = inventory investment

Question 12

What is the main driver if consumption

Answer 12

Disposable income wich is the amount they have left after the government is done with them

Question 13

What is this C=C(Y(d))
(+)

Answer 13

It means that consumption C is a function of disposable income Y(d) and that C increases when Y(d) does

Question 14

What is the behavioral equation of consumption

Answer 14

C = c0 - c1*Y(d) , c0 is what people would consume if they had no income, c1 is ratio consumed of disposable income

Question 15

What is propensity to consume

Answer 15

The ratio consumed of disposable income, amount not saved

Question 16

What is an alternative less literal interpretation of c0 in the behavioral consumption equation

Answer 16

Consumption unrelated to disposable income such as access to credit

Question 17

How is disposable income calculated

Answer 17

Y - T = income - net taxes

Question 18

What are endogenous variables

Answer 18

Variables that depend on other variables

Question 19

What are exogenous variables

Answer 19

Variables taken as given

Question 20

What is fiscal policy

Answer 20

How governments choose to spend and tax

Question 21

Show all equations of demand in a closed economy. Express Z with only exogenous variables

Answer 21

Z = C+I+G = c0 + c1(Y-T) + I + T = Y = c1Y - c1T + c0 + I + G => Y(1 - c1) = -c1*T + c0 + I + G

Z = (-c1*T + c0 + I + G)/(1-c1)

Question 22

What is autonomous spending

Answer 22

The part of demand that does not depend on output

c0 + I + G - c1*T

Question 23

When is there equalibrium in the goods market

Answer 23

When production is the same as demand

Question 24

What is the multiplayer in the equilibrium demand equation

Answer 24

1/(1-c1)

Question 25

What is a geometric series

Answer 25

It is when production increases income which creates a demand increase of c1^n for each round

Question 26

Does output shift instantaneously with demand

Answer 26

No, consumers take time to adapt their consumption habits and firms take time to increase production

Question 27

How is private savings described mathematically

Answer 27

Spr = Yd - C = Y-T-C

Question 28

How is public savings described mathematically

Answer 28

Sp = T - G

Question 29

How do you calculate private savings from the production equation

Answer 29

Y = C+I+G => Y-C-T = I+G-T = Spr => I = Spr + T -G = Spr + Spu = S

This means that Investment equals Savings in a closed economy

Question 30

What is the IS relation

Answer 30

That investments must equal savings in the goods market

Question 31

What are the two equalibriums in the goods market

Answer 31

Production = Demand & Investment = Savings

Question 32

What is the paradox of saving

Answer 32

That increased saving lowers production which in turn lowers the amount that can be saved

Question 33

What stands in the way of government controlling production through monetary policy

Answer 33

General slowness, imports and investment, expectations, inflation and debt are all side affects and variables that may affect the governments decition