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Year 1 > Macroeconomics > Flashcards

Macroeconomics Flashcards

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1
Q

What is the inflation rate?

A

A device that measures how fast prices are rising

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2
Q

What are endogenous variables?

A

Variables that a model tries to explain

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3
Q

What is the market clearing condition?

A

Quantity supplied = Quantity demanded

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4
Q

What is the difference between the long run and the short run?

A

In the long run, prices are flexible. In the short run, they’re sticky

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5
Q

What is GDP

A

Gross Domestic Product is the market value of all final goods and services produced within an economy in a given period of time

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6
Q

Whats Nominal GDP

A

The value of goods and services measured at current prices

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7
Q

Whats Real GDP

A

GDP measured at fixed prices

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8
Q

Whats Gross National Product

A

The total income earned by nationals, including those living abroad

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9
Q

What is the Marginal Product of Labour

A

The extra output produced by a unit increase in Labour

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10
Q

When should a firm keep employing labour?

A

Until MPL = w/p

w = wage, p = price

w/p is the real wage

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11
Q

When should a firm keep renting capital

A

Until MPK = r/p, the real price of rent

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12
Q

What is the general form of a Cobb-Douglas Production function?

A

Y(K,L) = AK^(a)L^(1-a)

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13
Q

Show the Marginal Propensity to consume on a graph

A

MPC is the increase in consumption when disposable income increases by 1

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14
Q

What is the national saving?

A

Y - C - G

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15
Q

What is private saving?

A

Y - T - C

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16
Q

What is public saving?

A

T - G

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17
Q

What is saving equal to?

A

Investment

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18
Q

Plot Saving against Investment

A
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19
Q

Show the impact of an increase in government purchases on saving and investment. Explain crowding out

A

Increase in government purchases causes interest rate to rise and investment to fall. Called crowding out investment

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20
Q

What is fiscal policy?

A

Changes to spending and taxation, usually by elected representatives

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21
Q

What is monetary policy

A

Changes to interest rates and banking, made by central banks

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22
Q

What are the three properties of money?

A

i) store of value
ii) unit of account
iii) medium of exchange

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23
Q

What is the Quantity Theory of Money?

A

Money Supply x Velocity = Prices x Output

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24
Q

Explain why changes in the money supply has ultimate control over inflation

A
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25
What is seigniorage?
The revenue raised by printing money
26
What is the fisher equation?
r = i - pi r = real interest rate i = nominal interest rate pi = inflation
27
What is the effect on the nominal interest rate by a 1% increase in inflation
a 1% increase
28
What is the ex-ante real interest rate?
The expected real interest rate
29
What are the costs of expected inflation? [2]
Shoe-Leather costs - constantly walking to the bank Menu costs - constant price changes
30
What is the impact of unexpected inflation
If the real interest rate is less than expected interest rate, then the creditor gains as the money being paid back is worth more than anticipated If the interest rate is more than expected, the debtor gains as the debtor repays the loan with less valuable currency.
31
What is classical dichotomy?
The theoretical separation of nominal and real variables
32
What is Saving minus Investment
Net Exports
33
When does a country have a trade surplus?
When net exports are greater than zero
34
In an small open economy, what is assumed about the real interest rate
Always equal to world interest rate, r\*
35
Show the impact of expansionary fiscal policy in a small open economy
36
Show the impact in a small open economy of an increase in investment
37
What is the nominal exchange rate
The relationship between the relative price of the currency of two countries
38
What is the equation for the real exchange rate?
(Nominal exchange rate)(Price of domestic good) / (Price of foreign good)
39
What is the relative price of domestic goods if the real exchange rate is high?
Domestic goods are fairly expensive
40
Show the impact on net exports and the real exchange rate with expansionary fiscal policy
41
What is the equilibrium unemployment rate
sE=fU
42
What is frictional unemployment?
the time it takes workers to search for a job
43
What are sectoral shifts?
Changes in demand for certain skills in industries
44
What is wage rigidity?
When wages fail to adjust to the level where labour supply equals labour demand
45
Show the effect of wage rigidity on unemployment
46
What is the Solow Growth model designed to show?
How growth in the capital stock, in the labour force and advances in technology, interact in an economy
47
Draw the basic solow model
48
When is the capital stock in a steady state
when sf(k) = delta(k)
49
Show how an increase in saving affects the capital stock
50
When is the golden rule steady state achieved?
When consumption is maximised, ie when MPK = delta
51
Show the golden rule steady state on a graph
52
Show the transitional effect on output, consumption and investment to the golden rule steady state from starting with too much capital
Increase saving rate Output increases Consumption increases Investment decreases
53
What is denoted by n in the solow growth model?
The increase in population
54
What is the steady state condition in the Solow model with population growth?
MPK = (delta + n)k
55
What is denoted by g in the Solow growth model?
Labout-augmenting technological progress
56
Give 3 leading economic indicators
New orders for consumer goods Average work week Index of stock prices
57
What is aggregate demand?
The quantity of goods and services people want to buy at any given price levels
58
What is aggregate supply?
The relationship between the quantity of goods and services supplied and the price level
59
Show long term and short term aggregate supply lines on a graph
60
Show the effect on prices and output of a decrease in the money supply both in the long run and the short run
61
What does IS and LM stand for?
IS - investment, saving LM - liquidity, money
62
Draw the keynesian cross
63
What is the government purchases multiplier?
A 1 unit increase in government purchases increase output by 1/1-MPC, where MPC is the gradient of planned expenditure
64
Draw the IS-LM model
65
What is the effect of increase in government spending on the IS curve
Shifts to the right
66
What is the effect on an increase in the money supply on the LM curve?
Shifts to the right
67
Show the impact of an increase in government purchases on the IS-LM model
68
Show the impact of an increase in the money supply on the IS-LM model
69
What are the three central bank reactions to an increase in government purchases?
Hold output constant Hold interest constant Hold money supply constant
70
What is the pigou effect?
As prices fall and real money balances rise, consumers should real wealthier and spend more
71
What is the debt-deflation theory?
A fall in price levels raise the amount of real debt, so unexpected inflation enriches creditors and impoverishes debtors
72
Draw the mundell fleming model
73
Show the effect of an increase in government spending with a floating exchange rate?
74
Show the effect of an increase in the money supply with a floating exchange rate
75
What is the impact of an increase in net exports in a floating exchange rate?
IS curve shifts right, exchange rate rises, output remains constant
76
Show the effect of an increase in government spending in a fixed exchange rate system
77

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