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Final Flashcards

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1
Q

Equation for nominal GDP

A

Real GDP*Price level

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2
Q

L index

A

Percent change of Real GDP in year 1 prices

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3
Q

P index

A

Percent change of Real GDP in year 2 prices

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4
Q

Fisher index

A

Year 2 chain weighted=Year 1 chain weighted*(1 + avg of L and P)

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5
Q

Constant growth rule

A

Yt=Yo(1+g)^t

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6
Q

Rule of 70

A

Time to double = 70/g

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7
Q

Per capita GDP

A

y=Abar*k^(1/3)

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8
Q

Cobb Douglas ________ predicts differences in per capita GDP

A

Under

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9
Q

Why does Abar vary?

A

Property rights, rule of law, human capital, etc

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10
Q

How do you solve Cobb Douglas?

A

Profit maximization

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11
Q

Abar is _________ important in Solow (compared to Cobb Douglas) due to the feedback effect from __________.

A

More, capital accumulation

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12
Q

Does capital accumulation drive LR growth?

A

No

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13
Q

Solow LR growth

A

Zero

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14
Q

How do you solve the Solow model?

A

Steady state sY=dK

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15
Q

What is zbar?

A

Worker productivity

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16
Q

Does the Romer model exhibit transition dynamics?

A

No. It has a balanced growth path and constant growth rate instead.

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17
Q

Does Solow-Romer have transition dynamics or a balanced growth path?

A

Both

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18
Q

In the Solow Romer model, countries grow at the…

A

Growth rate of knowledge

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19
Q

Why does Solow Romer grow faster than Romer?

A

Direct: higher output
Indirect: higher savings and investment

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20
Q

What happens if you increase savings in Solow Romer?

A

You jump to a higher balanced growth path but your growth rate doesn’t change. This is known as a level change.

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21
Q

How do you get the growth accounting measures equation?

A

Start with Cobb Douglas, divide both sides by L, write in growth rates

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22
Q

How do you solve Romer for the balanced growth path?

A

Sub into Lyt, use constant growth rate, sub into At

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23
Q

Solve Romer for output per person

A

Yt/L

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24
Q

Solve Romer for stock of knowledge

A

Delta At+1/At

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25
Solve Solow Romer for growth rate
Convert production function to growth rates, remember gyt*=gkt*
26
Solve Solow Romer for output per person
Start with equation for gkt*, flip flop to get gyt*, solve for K*, sub back into production function, divide by L
27
Wage rigidity
Wages don't change after a shock to labor demand or supply
28
Equation for PDV
Future value/((1+interest rate)^T)
29
$100 every year for x years
PDV0+PDV1+...+PDVx
30
Deflation
Negative interest rates
31
Disinflation
Positive but declining
32
Equation for the quantity theory of money
MV=PY
33
Quantity theory of money written in growth rates
gm=inflation+gy
34
Fisher equation
Nominal interest rate=real interest rate+inflation | i=R+inflation
35
3 premises of the SR model
1) economy is hit my shocks 2) monetary and fiscal policies affect the real economy in the SR 3) there is a dynamic trade off between output and inflation in the SR
36
Okun's law
u-ubar=-1/2(Yt tilda)
37
Unemployment during the Great Recession
10%
38
Leverage
Total liabilities/equity
39
Equation for return
1/leverage
40
IS curve: SR output depends on...
The real interest rate
41
The MP curve: the central bank sets the...
Nominal interest rate, which influences the real interest because of sticky inflation
42
Phillips curve: inflation rises if the economy is...
Booming
43
Equation for IS curve
Yt tilda=abar-bbar(Rt-rbar)
44
What is little abar?
Aggregate demand shock
45
How do you derive the IS curve?
Start with the national income identity, sub in investments, gather "a" terms, solver for short run output
46
Equation for Phillips curve
Inflation at t=inflation last period +vbar*Yt tilda + obar
47
What is vbar?
Sensitivity to demand conditions
48
What does a tightening or contracting Monetary Policy mean
Raise rates
49
Why is the money supply curve vertical?
The fed can change the money supply whenever they want
50
To increase the money supply we _____ bonds
Buy
51
Bond yield equation
(Coupon payment + face value - price)/price
52
There is an _____ relationship between interest rates and bond prices
Inverse
53
Equation for monetary policy rule
Rt-rbar=mbar(inflation at t - inflation target)
54
Dovish
Low mbar, steeper AD curve
55
Hawkish
High mbar, flatter AD curve
56
AS/Ad exhibits transition dynamics because
This period's inflation is dependent on last period's inflation
57
Equation for AD curve
Yt tilda=abar-bbar(inflation at t - inflation target)
58
Equation for AS curve
Inflation at t=inflation at t-1 + vbar*Yt tilda + obar
59
Equation for Taylor MP rule
(Rt-r)=mbar(inflation at t-inflation target) + nbar*Yt tilda
60
The Taylor MP curve makes the AD curve _____ than the regular MP rule.
Steeper
61
Equation for financial friction
R=Rff+fbar
62
What is fbar?
Financial friction. Only occurs during a financial crisis
63
When a financial bubble pops, it acts as a ______ AD shock
Negative
64
Government budget constraint
G+Tr+iBt=T+delta Bt+1 + delta mt+1 ``` G government purchases Tr transfer purchases iBt interest payments on debt T taxes B borrowing M change in money stock ```
65
Why has trade risen?
Transportation cost are declining | Tariffs are declining
66
What is the law of one price?
EP=Pw
67
Equation for real exchange rate
RER=EP/Pw | Must equal 1 in the long run
68
What happens to the exchange rate if you increase interest rates?
Increase exchange rate, decrease exports, increase imports, decrease net
69
Policy Trilemma
Stable exchange rates, MP autonomy, free financial flows

Macro Final (1 decks)

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