econ 103 midterm 1 Flashcards
(36 cards)
what is macroeconomics and what does is study?
Macroeconomics is the study of the economy as a whole, including growth in incomes/changes in the overall level of prices/the unemployment rate /the financial system
What do macroeconomists attempt to explain?
Macroeconomists attempt to explain the economy and to devise policies to
improve its performance.
What do economists use to examine different issues?
Economists use different models to examine different issues.
Where are the values of endogenous variables determined?
The values of endogenous variables are determined in the model,
Where are the values of exogenous variables determined?
The values of exogenous variables are determined outside the model (the model takes their values & behavior as given)
What do models with flexible prices describe?
Models with flexible prices describe the economy in the long run
What do models with sticky prices describe?
models with
sticky prices describe the economy in the short run
Does macroeconomics uses tools from microeconomics?
YES, Macroeconomic events and performance arise from many microeconomic
transactions, so macroeconomics uses many of the tools of microeconomics.
What does GDP measure?
Gross Domestic Product (GDP) measures both total income and
total expenditure on the economy’s output of goods & services.
What does Nominal GDP value?
Nominal GDP values output at current prices real GDP values output at constant
prices. Changes in output affect both measures, but changes in prices only affect
nominal GDP
What do changes in output affect? What do changes in prices affect?
Changes in output affect both measures BUT changes in prices only affect nominal GDP
What is GDP the sum of?
GDP is the sum of consumption, investment, government purchases, and net
exports.
The overall level of prices can be measured by either:
the Consumer Price Index (CPI) is the price of a fixed basket of goods purchased by the typical consumer.
& the GDP deflator, is the ratio of nominal to real GDP
What is the unemployment rate?
The unemployment rate is the fraction of the labor force that is not employed.
Total output is determined by:
the economy’s quantities of capital and labor – the level of technology
Competitive firms hire each factor until its marginal product ____ its price.
Competitive firms hire each factor until its marginal product equals! its price.
If the production function has constant returns to scale, then labor income plus
capital income _____ total income (output).
If the production function has constant returns to scale, then labor income plus capital income equals total income (output).
The real interest rate adjusts to equate the demand for and supply of:
goods and services, and loanable funds
A closed economy’s output is used for:
Consumption (C), Investment (I) , and government spending (G)
What does a decrease in national savings cause?
(Interest rate & investment)
A decrease in national saving causes the interest rate to rise and investment to
fall.
What does an increase in investment demand cause?
An increase in investment demand causes the interest rate to rise, but does not affect the equilibrium level of investment if the supply of loanable funds is fixed.
The Solow growth model shows that, in the long run, a country’s standard of living depends:
positively on its saving rate & negatively on its population growth rate
An increase in the saving rate leads to:
higher output in the long run /faster growth temporarily /but not faster steady-state growth /
Case Study: The Miracle of Japanese and German Growth
What happens if the economy has more capital than the Golden Rule level?
If the economy has more capital than the Golden Rule level, then reducing saving will increase consumption at all points in time, making all generations better off.
