Macro Midterm

Question 1

Aggregate Output:

Answer 1

everything that is produced within a country

Question 2

Potential Output

Answer 2

Y* amount of goods/services an economy could produce (assumes everyone who wants to work is working 40 hour weeks and full use of capital)

Question 3

Y*

Answer 3

potential output

Question 4

Y

Answer 4

actual output

Question 5

recessionary gap

Answer 5

Y* > Y

Question 6

Inflationary gap

Answer 6

Y > Y*

Question 7

employement

Answer 7

anyone over the age of 15 who has a job

Question 8

Cyclical unemployment:

Answer 8

caused by recession/business cycle

Question 9

Frictional unemployment

Answer 9

moving between jobs

Question 10

Structural unemployment

Answer 10

mismatch of skills

Question 11

labor force

Answer 11

number of people employed + unemployed

Question 12

Unemployed people

Answer 12

Does not include: discouraged (given up) workers, students, retired people

Question 13

Employment rate

Answer 13

people employed / labor force * 100

Question 14

Labour participation rate

Answer 14

labour force / adult population

Question 15

Calculating GDP

Answer 15

value added (avoids double counting), expenditure (formula) income approach

Question 16

Income approach

Answer 16

wages + profits + interest payments + indirect taxes - subsidies + depreciation

Question 17

CPI negatives

Answer 17

OVERSTATES inflation

Does not measure quality change, introduction of new goods, or substitution effect

Question 18

Formula for percentage change

Answer 18

new - old / old * 100

Question 19

CPI Steps

Answer 19

Calculate consumption in each year (using base year quantities)
Calculate CPI in each year = total cost (year) / total cost (base year) * 100
Inflation = CPI (year 2) - CPI (year 1) / CPI (year 1) * 100

Question 20

GDP approach inflation

Answer 20

1. Calculate nominal GDP in each year (price * quantity) and add
2. Calculate real GDP for each year (keep price constant and change quantity)
3. GDP deflator for each year = nominal GDP / real GDP * 100
   Inflation = new deflator - old deflator / old deflator * 100

Question 21

C formula

Answer 21

C = a + bYd

Question 22

MPS

Answer 22

Z - slope of AE function

Question 23

AE = A + zY

Answer 23

A is autonomous expenditure, Z is MPS or induced expenditure

Question 24

Nx

Answer 24

X0 - mY

Question 25

Simple multiplier

Answer 25

1 / 1-Z (steepter = bigger Z = bigger multiplier)

Question 26

How to calc changes?

Answer 26

△ Y = △ in A * simple multiplier (1 / 1-Z)

Question 27

Fisher effect

Answer 27

i = r + pie^e

Question 28

Shifts in AE

Answer 28

change in a, I, G, X

Question 29

Change in AE Slope

Answer 29

change in MPC, tax, MPI

Question 30

Change in Price level

Answer 30

shifts AE up (if decrease in PL), move along AD

Question 31

Large Z

Answer 31

Steep AE = flat AD curve, large shifts (unstable)

Question 32

Small Z

Answer 32

Flat AE = steep AD, small shifts (stable)

Question 33

Multiplier

Answer 33

distance between new and old equalibrium (= A * mult (change in Y / change A)

Question 34

Simple mult

Answer 34

distance between AD curves after shift (constant PL) = change A/1-z

Question 35

Automatic Stablizers

Answer 35

increase tax, decrease MPC, increase MPI (they make Z smaller)

Question 36

Supply Shocks

Answer 36

NEG = left, pos = right - tech, factors of production

Question 37

Negative Demand Shocks

Answer 37

left shift - downward pressure on wages (slow due to sticky wages)

Question 38

Demand shock causes

Answer 38

change in I (interest rates), G or tax (fiscal policy) or exports

Question 39

Positive demand shock

Answer 39

right - upward pressure on wages, they rise until equalbrium

Question 40

Automatic (economy on its own)

Answer 40

AS shifts wages until equalibrium

Question 41

Policy changes

Answer 41

Shift AD curve to equalbirum - not exact or long tern

Question 42

National savings

Answer 42

Y - C - G

Question 43

Private savings

Answer 43

Y - T - C

Question 44

Public Savings

Answer 44

T - G

Question 45

Neoclassical Growth theory

Answer 45

diminishing marginal returns (keep 1 constant), constant returns to scale (change both, output should change the same amount)

Question 46

If population increases

Answer 46

GDP increases, living standards decrease

Question 47

Constant returns mean

Answer 47

no change in living standards, increase in GDP