Macroeconomics

Question 1

GDP Measure: Sum of value added

Answer 1

Sum of all the value added

Question 2

GDP Measure: Expenditures

Answer 2

Consumption + Investment + Government spending + (Net Exports)

Question 3

GDP Measure: Income

Answer 3

Sum of the cost of labour + The sum of the cost of capital

Question 4

What are the three GDP measures?

Answer 4

• Sum of Value added
• Expenditure method
• Income method

Question 5

Function for GDP Growth

Answer 5

Y=GDP, A=TFP, K=Capital, L=Labor

Question 6

Output per person?

Answer 6

Y=GDP, L=Labor, A=TFP, K=Capital

Question 7

Quantity theory of Money

Answer 7

MV = PT

Amount of Money X Velocity = Avg. Price X No. of Transactions

Question 8

Government Budget Identity

Answer 8

Chg in govt debt = Interest Payments + Primary Deficit - Seignorage

Question 9

IS Curve
(Aggregate Demand)

Answer 9

Demand rel. to y* = Exp. Demand rel. to y* - Real interest rates rel. to r* [long run real rates]

Question 10

Phillips Curve
(inflation)

Answer 10

Inflation = Expected Inflation + Impact of "Output Gap" + Price or Supply Shocks ie (matching rival prices) + (chg in internal costs, eg hours worked) + (external changes to inputs & outputs, eg wages)

Question 11

Central Bank Reaction Function

Answer 11

Approx. Real Interest rates [Nominal Rate - Tgt. inflation] = Long term rate + Inflation [Nat. Real Rate + 𝛾 * Infl. Rel. to Target]

Question 12

Law of one price

Answer 12

Q=Competitiveness, e=Exchange rate, P*=Foreign Prices, P=Domestic Prices

Question 13

Uncovered interest rate parity (UIP)

Answer 13

Interest rates - foreign interest rates = (Expectation of future nominal exchange rate / Nominal exc

Question 14

What are: ⍺, β and γ

Answer 14

• ⍺ = Sensitivity to y - y*
• β = Sensitivity to i + RP - π - r*
• γ = Sensitivity to π - π*

Question 15

How is ‘value added’ defined

Answer 15

Value added is defined as total sales less intermediate inputs

Question 16

The Four Main Models

Answer 16

1. Keynes (Y=C+I+G)
2. Plus Inflation (Phillips curve)
3. Demand & Therefore interest rates (IS Curve)
4. Central Banks (CBRF

Question 17

The three curves for the 4 models

Answer 17