FINAL

Question 1

Four economic questions

Answer 1

1. Why do I comes grow?
2. Why do incomes fluctuate?
3. What determines inflation?
4. Why is there unemployment?

Question 2

Principles of how individuals interact

Answer 2

• trade makes everyone better off
• markets are usually a good way to organize economic activity
• governments can sometimes improve market outcomes

Question 3

Difference between GDP and GNP

Answer 3

GDP- market value of all final goods produced domestically during a period of time

GNP- all goods produced by Americans at home and abroad

GNP = GDP - net factor payments

Question 4

Fundamental Identity of national income accounting

Answer 4

Total production = total income = total expenditure

Question 5

National income expenditure identity

Answer 5

Y = C + I + G + NX

Question 6

Nominal vs Real GDP

Answer 6

-nominal is not adjusted for inflation

Question 7

GDP Deflator

Answer 7

GDP deflator (c,i,g,nx) = (nominal gdp / real gdp) x 100

Question 8

CPI formula

Answer 8

CPI = (price of basket in current year/price of basket in base year)100

Question 9

Three main price indices

Answer 9

• CPI
• PCE (used by Fed)
• gdp deflator

Question 10

Interest rate formula thing

Answer 10

Real interest rate = nominal interest rate - inflation rate

Question 11

Labor force equation

Answer 11

Labor force = number of unemployed + number of employed

Question 12

Unemployment rate formula

Answer 12

Unemployment rate = (# of unemployed / labor force)100

Question 13

Labor force participation rate formula

Answer 13

Labor force participation rate = (labor force/adult population)

Question 14

Adult population formula

Answer 14

Adult population = labor force + those over or equal to 16 not participating in the labor force

Question 15

Employment population ration

Answer 15

Number of employed/adult population

Question 16

Natural rate of unemployment revolves around

Answer 16

Structural and frictional unemployment

Question 17

Structural unemployment

Answer 17

Fewer jobs than workers; skills become obsolete; generally long term

Caused by:

• minimum wage laws
• unions
• efficiency wages

Question 18

Cyclical unemployment

Answer 18

Deviation from the natural rate of unemployment; associated with the business cycle

Question 19

Productivity equation

Answer 19

Productivity = Y/L

Output/unit of labor input

Question 20

Productivity determinants

Answer 20

• K= physical capital
• K/L= physical capital/worker
• H= human capital
• H/L= human capital/worker
• N= natural resources
• N/L= natural resources/worker
• A= level of technology

Question 21

Production function

Answer 21

Y = A F(L,K,H,N)

this function has CRTS

Question 22

Cobb’s production function

Answer 22

Y = A K^a L^(1-a)

a= share of capital

Question 23

In a closed economy…

Think in terms of savings and investment

Answer 23

NX=0

S=I

Question 24

Disposable income formula

Answer 24

Y-T

Question 25

Private savings formula

Answer 25

Sp=Y-T-C

Question 26

Government savings formula

Answer 26

Sg=T-G

Question 27

National savings formula

Answer 27

Private savings+ government savings

Question 28

Characteristics of loanable funds market

Answer 28

• supply/demand model
• one financial market into which all savings are deposited and from which all loans are taken
• supply of loanable funds comes from national savings (private and government savings)
• demand for loanable funds comes from investment