Midterm Flashcards
What is national income equal to
GNP- depreciation- indirect business taxes
Which of the following is included in the calculation of GDP Total inventory over the last 5 years The proceeds from a second hand car Cocaine sales Proceeds from the sale of an iPod
Proceeds from the sale of an iPod
What is GDP equal to
C+I+G+NX
What determines long run GDP
Long run GDP is determined only by supply
The marginal propensity to consumer (MPC) is
Less than 1 but greater than 0
In the long run money affects
Money is neutral in the long run ( it affects nothing)
Consumption function whose equation is: C=MPC(Y-T) what is true about that functional relationship
A decrease in (Y-T) causes C go decrease but by a smaller amount
In the closed economy of aggregate output, income and expenditure determination when the real interest rate is below its equilibrium level what is true?
There is excess demand for loans and excess demand for goods
Supposed that in the closed economy model of aggregate output, income and expenditure determination, taxes decrease (T) with no change in government spending (G). Which describes the full long run impact of that change
C increases; I decreases; Y does not change
Within the context of the model of the open economy, the twin deficits phenomenon arises because
An increase in government spending or cut in taxes reduces saving minus investment
If the US rate of inflation is 5% annually while the Canadian rate of inflation is 2% annually then the theory of relative purchasing power parity predicts that
The nominal exchange rate (e=US$ per C$) between Canada and the US will appreciate (rise) by 3% annually
According to the law of one price, in the long term
The price of a good in Canada is equal to the price of that same good in the US multiplied by the exchange rate
What are some reasons why absolute purchasing power parity often does not hold
Most goods are not tradeable so arbitrage cannot take place
Hugely expensive transport costs
Regulations on levels of imports
Structural employment exists when
The real wage is stuck above the market clearing level
