Badm 7200 Exam 1

Front 1

those variables that a model tries to explain

Back 1

endogenous variables

Front 2

those variables that a model takes as given

Back 2

exogenous variables

Front 3

prices that are quick to adjust in some markets but in other markets do not clear instantaneously

Back 3

flexible prices

Front 4

prices that are slow to adjust

Back 4

sticky prices

Front 5

prices are ___ in the long-run but ___ in the short-run

Back 5

flexible; sticky

Front 6

- simplified versions of a more complex reality
- irrelevant details are stripped away
- are used to:
- show relationships between variables
- explain the economy's behavior
- devise policies to improve economic performance

Back 6

economic models

Front 7

an assumption that prices are flexible, & adjust to equate supply & demand

Back 7

market clearing

Front 8

3 most frequently useed statistics for macroeconomic data

Back 8

1. GDP
2. CPI
3. unemployment rate

Front 9

the 4 broad categories that the national income accounts divide GDP into

Back 9

1. Consumption (C)
2. Investment (I)
3. Government purchases (G)
4. Net exports (NX)

Front 10

newly created goods & services that add to the capital stock

Back 10

investment

Front 11

Expenditure on goods & services by households. Divided into 3 subcategories: (1) nondurable goods, (2) durable goods, & (3) services

Back 11

consumption

Front 12

Goods & services bought by federal, state, & local governments. It excludes transfer payments such as unemployment insurance payments, welfare & Social Security payments.

Back 12

government purchases

Front 13

the value of all newly produced goods & services exported to other countries minus the value of all goods & services imported from abroad

Back 13

net exports

Front 14

3 key differences between the CPI & the GDP deflator

Back 14

1. GDP deflator measures the prices of all goods & services produced, whereas the CPI measures the prices of only the goods & services bought by consumers
2. The GDP deflator only includes only those goods produced domestically
3. The CPI uses a fixed basket, whereas the GDP deflator uses a changing basket

Front 15

3 reasons why many economists believe that changes in the CPI overestimate the true inflation rate

Back 15

1. substitution effect
2. new goods
3. quality improvements

Front 16

consumers substitute less expensive goods for more expensive goods

Back 16

substitution effect

Front 17

When producers introduce a ___, consumers have more choices. The introduction of these increases the purchasing power of the dollar. This increase in purchasing power, however, is not reflected by a lower CPI.

Back 17

new goods

Front 18

A(n) ___ means that each dollar effectively buys more for the consumer. This too is like a decrease in the price level that is not measured by the CPI.

Back 18

improvement in quality

Front 19

- a price index with a fixed basket of goods
- tends to overstate the increase in the cost of livingi because it doesn't take into account the fact that consumers have the opportunity to substitute less expensive goods for more expensive ones

Back 19

Laspeyres index

Front 20

- a price index with a changing basket of goods
- tends to understate the increase in the cost of living

Back 20

Paasche index

Front 21

- The implicit price deflator is an example of a ___ index.
- Why?

Back 21

- Paasche
- Because it is computed with a changing basket of goods

Front 22

- The CPI is an example of a ___.
- Why?

Back 22

- Laspeyres
- Because it is computed with a fixed basket of goods

Front 23

Shows the relationship between inputs & outputs. It is altered by technological change.

Back 23

production function

Front 24

According to this theory, the distribution of national income is determined by factor prices. The price of each factor is determined by supply & demand.

Back 24

neoclassical theory of distribution

Front 25

the extra output obtained by hiring an extra unit of labor

Back 25

marginal product of labor

Front 26

When holding the amount of capital fixed, the marginal product of labor (increases, decreases) as the amount of labor increases

Back 26

decreases

Front 27

Net taxes is found by subtracting out ___ from the taxes that the government takes in.

Back 27

transfer payments

Front 28

___ is determined by a government's choices of government purchases (G) and net taxes (T).

Back 28

Fiscal policy

Front 29

Can equilibrium be achieved by adjustment of the price level?

Back 29

No, equilibrium can only be achieved by adjusting the interest rate. It cannot be achieved by adjusting the price level because it is expressed in real terms in the consumption function equation.

Front 30

Saving & investment represent the supply & demand for ___.

Back 30

loanable funds

Front 31

- An increase in investment demand results in a(n) (increase, decrease) in the interest rate.
- Does it affect the level of investment?

Back 31

- increase
- no

Front 32

GDP Deflator for 2005:

Back 32

P^05 = Sigma(P^05 x Q^05) / Sigma(P^92 x Q^05)

Front 33

CPI for 2005:

Back 33

P^05 = Sigma(P^05 x Q^92) / Sigma(P^92 x Q^92)

Front 34

Production Function:

Back 34

Y = F(K,L)

Front 35

National Saving:

Back 35

S = Y - C(Y - T) - G

Front 36

Private Saving:

Back 36

S = Y - C(Y - T) - T

Front 37

Government Saving:

Back 37

T - G

Front 38

Equation of Exchange:

Back 38

M x V = P x Y arrow symbol m-sub-g = pi + y-sub-g

Front 39

Fisher Equation:

Back 39

i = r + pi

Front 40

Money Market Equilibrium:

Back 40

M / P = L(i,Y) = L(r + pi^e)

Front 41

National Income Accounting Identity:

Back 41

Y = C + I + G + NX

Front 42

Net Capital Outflow = Trade Balance:

Back 42

S - I = CF = NX

Front 43

Nominal & real exchange rates:

Back 43

e = backwards 3 x (P* / P)

Front 44

Natural unemployment rate:

Back 44

u-sub-n = s / (s + f)

Front 45

The steady state condition in the absence of population growth & technical progress:

Back 45

Delta-k = s x f(k) - (lowercase delta x k) = 0

Front 46

The golden rule in the absence of population growth & technical progress:

Back 46

MPK = lowercase delta x k

Front 47

P = ?

Back 47

price

Front 48

Q = ?

Back 48

quantity

Front 49

Y = ?

Back 49

output

Front 50

K = ?

Back 50

capital

Front 51

L = ?

Back 51

labor

Front 52

any letter with a bar over it = ?

Back 52

natural rate

Front 53

C = ?

Back 53

consumption

Front 54

T = ?

Back 54

net taxes

Front 55

G = ?

Back 55

government purchases

Front 56

I = ?

Back 56

investment

Front 57

I(r) = ?

Back 57

investment at the interest rate

Front 58

r = ?

Back 58

interest rate

Front 59

S = ?

Back 59

savings

Front 60

essentially the dollar cost of one unit of GDP

Back 60

price level

Front 61

measures the growth rate of the price level

Back 61

inflation rate

Front 62

a negative inflation rate, as a result of falling prices

Back 62

deflation

Front 63

a situation in which prices are rising but the rate of inflation is falling

Back 63

disinflation

Front 64

money that has no intrinsic value - such as dollar bills; it is money because the government says so

Back 64

fiat money

Front 65

money that exists when some intrinsically valuable good also serves as money

Back 65

commodity money