Macro Test 1 Flashcards
(114 cards)
1
Q
major macro goals
A
- promote max production
- promote max purchasing power
- promote max employment
- smooth out business cycle
2
Q
descriptive statements
A
facts or data
3
Q
positive statements
A
statements/theories about how the economy works
4
Q
normative statements
A
value judgments about what is +/-
statements about what action should be taken
5
Q
how to calculate growth rate
A
(new-old)/old * 100%
6
Q
calculating consumer price index
A
change in price, hold quantity constant (PoQo, P1Qo, P2Qo)
7
Q
calculating real GDP
A
value of output any year using prices of a base year (change quantity but hold price constant) (PoQo, PoQ1, PoQ2)
8
Q
calculating nominal GDP
A
both price and quantity change based on year (PoQo, P1Q1, P2Q2)
9
Q
calculating real GDP given nominal GDP and price index
A
(nominal GDP/price index) * 100
10
Q
real output per capita
A
real gdp/population
11
Q
rule of 72
A
years required to double = 72/x% where x is the annual growth rate
12
Q
a decrease in value of $ makes it ___ expensive for foreigners to use $ to buy american stuff
A
less
13
Q
a decrease in value of $ causes us exports to ___
A
increase
14
Q
decrease in value of $ makes it ___ expensive for americans to purchase foreign goods with foreign money
A
more
15
Q
decrease in value of $ causes us imports to ___
A
decrease
16
Q
dividends and max tax rate
A
portion of after-tax profits that are distributed to stockholders; 15%
17
Q
capital gain
A
increase in price of asset (i.e. bought stock for $50, sold for $70, capital gain of $20)
18
Q
short term capital gain and tax rate
A
stock owned for less than a year; tax rate is your regular marginal tax rate (could be as high as 35%)
19
Q
long term capital gain and tax rate
A
stock owned for more than a year; max tax rate is 15%
20
Q
if interest rates in economy are ___, i will offer less money for a bond
A
high
21
Q
if interest offered on the bond is ___, i will offer more money for a bond
A
high
22
Q
if a bond is high risk, i will offer a ___ price
A
lower
23
Q
us government securities
A
taxable but least risky because no danger of default
24
Q
corporate bonds
A
rated AAA, AA, A…
taxable
class C = junk bonds (high risk)
25
municipal bonds
issued by cities, NOT taxable, risk varies
26
factors influencing bond prices
inflation rate, term to maturity, taxability of interest
27
real rate of interest
real rate = nominal rate - inflation
28
taxable income =
gross income - exemptions - deductions
29
capital gains and dividends are taxed at a ___ rate than other sources of income
lower
30
how to calculate average tax rate on gross income
tax paid/total gross income
31
largest component of GDP
consumption expenditures
32
calculating PV on bonds
price of interest/(1+i)^(year 1) + price of interest/(1+i)^(year 2)+...+ price of interest/(1+i)^(year n) + total price/(1+i)^(year n)
33
how to calculate how many times higher prices were using CPI
cpi new/cpi old
34
growth rate in CPI =
inflation rate
35
more than 60% of total sales in the US are made by ___
corporations
36
more than 60% of business firms in US are ___
sole proprietorships
37
prime rate
interest rate the bank charge their biggest and best customers when lending money
38
federal funds rate
interest rate one bank charges another bank for overnight loans
39
discount rate
interest rate the FRS charges banks that borrow reserves
40
value added (calculation)
value of output at end of production - cost of inputs at beginning of production
41
items not counted in GDP
sale of used goods, sales of imports, household services, government transfer payments (social security benefits, unemployment, veterans benefits)
42
how to calculate net national product
nominal gdp - depreciation
43
how to calculate gdp (consumption, purchases by business, government purchases, net exports)
c+i+g+(exports-imports) = c+i+g+net exports
44
three categories of investment spending
new plant and equipment expenditures, new residential construction expenditures, changes in business inventories
45
net investment =
gross investment - depreciation
46
total government spending =
government spending on goods + government transfer payments
47
government surplus is when...
tax revenue > gov spending + gov transfer payments
48
trade surplus is when...
exports > imports
49
civilian non-institutional population (CNP)
all persons over 16 who aren't inmates or crazy people or vegetables (potential labor force)
= E+U+N
50
employed (E)
1. worked for pay 2. worked unpaid in a family business 3. temp absent due to illness or something
51
unemployed (U)
1. did not work during surveyed week 2. available for work 3. had looked for job *must want to find a job
52
not in labor force (N)
mainly students, housewives, retirees
53
civilian labor force (LF)
e+u (excludes military)
54
unemployment rate
(u/LF)*100%
55
employment rate
(E/LF)*100%
56
labor force participation rate
(LF/CNP)*100%
57
the unemployment rate tends to ___ the true level of unemployment
underestimate
58
frictional unemployment
portion of unemployment due to normal workings of labor market (new entrants, people switching jobs)
59
seasonal unemployment
caused by seasonal changes in demand for labor (ski resorts, beaches, construction)
60
structural unemployment
underemployment caused by changes in structure of economy (steel industry going away)
61
cyclical unemployment
unemployment because of a recession (cure: stimulate economy)
62
natural rate of U
U that occurs as a normal part of economy = frictional + structural + seasonal
63
about half unemployed are ___
job losers
64
potential gdp
level of output at full employment
65
gdp gap
potential gdp-actual gdp
66
inflation
sustained increase in average level of prices (NOT an increase in price of one item)
67
if actual inflation > expected inflation (effect on borrowers/lenders)
borrower gains, lender loses
68
unanticipated inflation __ lenders and __ borrowers
hurts, helps
69
disinflation
decrease in inflation rate *not = deflation
70
stagflation
simultaneous existence of high inflation and high unemployment
71
hyperinflation
inflation > 50% (germany during world war 1)
72
indexing
increasing contracted payments automatically to take inflation into account
73
capital gains are/are not indexed
are not
74
cost of living adjustments
= pay increases, which are indexed
75
indexing relationship to inflation
helps make inflation self-perpetuating
76
with inflation, foreigners will buy ___ from us
less
77
measured inflation rate tends to ___ the true inflation rate
overstate
78
demand pull inflation
caused by increase in demand
79
cost push inflation
caused by increase in production costs
80
phillips curve
graph showing negative (inverse) relationship between unemployment and inflation
81
consumption function variables and equation
```
household income (Y)
spending it (C) saving it (S) paying taxes (T)
Y=C+S+T
```
82
disposable income (Yd)
income after taxes = Y-T=C+S
83
relationship between consumption and income is
linear (slope decreases as income increases)
84
intercept of consumption function =
autonomous consumption (consumption spending that doesnt depend on level of income or GDP
85
slope of consumption function =
marginal propensity to consume
86
induced consumption
the increase in consumption spending caused by an increase in income (plugging numbers into equation)
87
factors which cause CF to shift upward
1. increase in wealth 2. decrease in interest rates 3. increase in future income 4. large increase in inflation
88
average propensity to consume =
total consumption spending/total income C/Yd
89
if consumption function is straight line, the apc ___ as yd __
decreases, increases
90
suppose a point on CF lies above a 45 degree line
consumption exceeds income
91
autonomous investment
investment spending not depending on level of GDP
92
induced investment
investment spending increases as gdp increases
93
categories of investment spending
1. plant spending (influenced by interest rates and state of economy) 2. new residential construction (influenced by interest rates) 3. changes in inventories
94
desired investment spending
= amount businesses want to spend on new plant + new residential construction + how much they want to add into their inventory
95
if actual investment > desired investment
businesses reduce spending to make it equal
96
if all desired investment spending is autonomous, the investment function will be (graph)
horizontal line slope = 0
97
factors increasing autonomous investment
increase in profits, decrease interest rate, tech changes
98
if there is induced investment spending, the investment function will (graph)...
upward slope
99
if total output > desired purchases
reduce output
100
equilibrium condition equation
Ye=C+I+G+NX
101
multiplier
change in equilibrium output/change in autonomous spending =delta(Ye)/delta(G)
102
autonomous spending multiplier =
1/(1-mpc)
103
to eliminate gdp gap, we must __ equilibrium output
increase
104
magnitude of the multiplier depends on magnitude of __
mpc (larger mpc = larger multiplier)
105
calculating savings using consumption function
s=Yd-C
106
mpc =
change in consumption/change in income
107
PV of a bond ___ as interest rates increase
decreases *selling a bond after interest rates increase means you'll get less money for it*
108
inflation causes exports to __ and imports to __
decrease, increase
109
increase in autonomous spending = delta(G) =
change in equilibrium output*(1-mpc)
110
mps =
1-mpc
111
government spending on final goods is x% of gdp
16%
112
exports are x% of gdp
10%
113
imports are x% of gdp
12%
114
imports are x% of gdp
12%
