Chapter 1 - Demand Side

Question 1

GDP Expenditure

Answer 1

c+i+g+x-m

Question 2

GDP Value Added

Answer 2

Value of output sold - costs of raw materials

Question 3

GDP Income Method

Answer 3

Salaries + Profits of capital owners

Question 4

Net Taxes

Answer 4

Taxes paid to govt/ - transfer payments

Question 5

Taxes formula

Answer 5

t=Ty

Question 6

Monetary Policy

Answer 6

Interest rates, Money supply, Exchange rates

Question 7

Fiscal Policy

Answer 7

Taxation and govt. spending

Question 8

Supply side policies

Answer 8

Boosting long run aggregate supply by increasing the quantity/quality of factors of production

Question 9

Interventionist policies

Answer 9

Policies that aim to rectify market failures through regulation and govt. spending

Question 10

Non-Interventionist policies

Answer 10

Aim to allow the market to work more freely

Question 11

Keynesian consumption function

Answer 11

c = c0 + c1(1 – t)y

Question 12

Autonomous consumption

Answer 12

Independent of income. The min level of consumption that must take place even when theres no income.

Question 13

MPC formula

Answer 13

c1 = change in C / change in disp. Y

Question 14

Disp. Y

Answer 14

(1-t)y

Question 15

MPS formula

Answer 15

s1 = 1 - (change in C / change in disp. Y)

Question 16

Autonomous demand

Answer 16

Components of AD that are independent of income

Question 17

Endogenous variable

Answer 17

Endogenous variables have values that are determined by other variables in the system

Question 18

Exogenous variable

Answer 18

An exogenous variable is a variable that is not affected by other variables in the system.

Question 19

Fischer Eqn

Answer 19

r = i-π^e (relationship between inflation and real and nominal interest rates)

Question 20

Investment eqn

Answer 20

a0-a1r

Question 21

IS eqn

Answer 21

y=A-ar where A≡k(c0+a0+g)and a≡ka1

Question 22

IS slope determinants

Answer 22

• Multiplier : higher means flatter IS

- Interest sensitivity of investment, more sensitive means flatter

Question 23

IS Shifters

Answer 23

Changes in any components of autonomous demand. Size of the shift = change in aut. demand x multiplier

Uncertainty

Household access to credit

Question 24

Present value formula

Answer 24

PV = FV/ (1 + r)^n where r is discount rate

Question 25

PV of expected profits

Answer 25

Sum of 1/(1+r)^i x capital pi^e (subscript)i+t FROM i=0 to T

Question 26

PIH

Answer 26

People optimally choose how much to consume by allocating their resources across their lifetime

Question 27

Euler eqn

Answer 27

Describes the relationship between consumption this period and consumption next period c(sub)t = (1+ρ)/(1+r) x c^e (sub)t+1 where ρ is the subjective discount rate, measure of impatience

Question 28

Marginal q model of investment

Answer 28

MB of inv / MC of inv MB = af(sub)k a is the price of output and f(sub)k is the marg productivity of capital MC = δ (rate of depreciation) + r (real int. rate)