Final Exam

Question 1

GDP Deflator

Answer 1

• A way to take the face off of inflation and see what actual growth has been.
• Calculated by (NGDP/RGDP)x100

Question 2

Inflation (For Year 2) by GDP

Answer 2

[(Deflator 2 - Deflator 1) / Deflator 1]

Question 3

Nominal GDP

Answer 3

Current Prices x Current Outputs

Question 4

Real GDP

Answer 4

Base Year Prices x Current Output

Question 5

CPI

Answer 5

Consumer Price Index: Measures consumption

(Price of Current Basket/Price of Base Year Basket)

Question 6

CPI Inflation

Answer 6

(CPI 2 - CPI 1) / CPI 1

Question 7

Real GDP

Answer 7

Y = C*I*G*NX

Question 8

C

Answer 8

Consumption

Question 9

Public Savings

Answer 9

Taxes - Government Spending

Question 10

Private Savings

Answer 10

Y - T - C

Question 11

National (Total) Savings

Answer 11

Public Savings + Private Savings

Question 12

How do are Y & YN affected by P & PE?

Answer 12

Y = YN + alpha(P-PE), where Y is output, YN is the natural rate of output, alpha is a measure of how much Y is affected by changes in price (P), where PE is expected price.

Question 13

Multpiplier Effect

Answer 13

If income increases for some reason (say government buys something from a private manufacturer), then consumption will also increase, further increasing output (Y).

But by how much?

Change(Y) = Multiplier*Change(G)

Question 14

Multipler

Answer 14

1/(1-MPC)

Question 15

MPC

Answer 15

Marginal Propensity to Consume: a portion of additional income that a household spends rather than saves.

Question 16

Crowding Out

Answer 16

If government increases spending in order to stimulate growth, rates will rise, causing people to investments to fall, thus having a negative effect on Y.

Question 17

Change in Consumption

Answer 17

Change(C) = MPC * Change(Y)

Taken into the aggregate, this is then multiplied by the multiplier 1/(1-MPC)

Question 18

Labor Force

Answer 18

Employed + Unemployed

Question 19

Labor Participation Rate

Answer 19

Labor Force / Population

Question 20

Unemployment

Answer 20

Unemployed / Labor Force

Question 21

Velocity of Money?

Answer 21

How quickly money changes hands:

MS*V = P*Y

Question 22

Value of Money

Answer 22

1 / Price

Question 23

Reserve Ratio

Answer 23

Reserves / Deposits

Question 24

Money Multiplier

Answer 24

The multipler of how much deposits will increase for all banks if deposits for one bank are increased.

1 / Reserve Ratio

Question 25

How will a monetary policy that increases MS affect Y?

Answer 25

Inc MS = dec r = inc I = inc AD = inc Y

Question 26

Sticky Wage Theory

Answer 26

Wages don’t just change every day, so when P is greater than Pe, firms get more money but wages stay the same.

Question 27

Sticky Prices

Answer 27

Due to “menu costs” and the fact that companies don’t change their prices every day, if real prices increase, the firms appear to have lower prices which creates more demand and thus more output.

Question 28

M1

Answer 28

Anything Iiquid (Generally stuff I can spend): curency, demand deopsits, traveler’s checks and other checkable deposits.

Question 29

M2

Answer 29

Less liquid stuff: Everything in M1, savings deposits, small time deposits, money market mutual funds & a few minor categories.