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37 Cards in this Set
- Front
- Back
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Macroeconomics |
The study of how the choices of households and firms influence aggregate economic outcomes |
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Model |
A simplified representation of reality, often using diagrams or equations, that shows how variables interact |
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3 Characteristics of a good macro model |
1. Has Micro level decisions 2. Aggregation of the micro agent rules 3. Stance on how prices are determined |
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How economic models work |
Exogenous variables, model, endogenous variable How external variables affect endogenous variables |
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GDP |
The total income earned domestically, including the income earned by foreign-owned factors of production; the total expenditure on domestically produced goods and services Y=C+I+G+NX |
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Inflation |
An increase in the overall level of prices |
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Unemployment |
Those in the labor force who are looking for a job Unemployment Rate: U/L |
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Main macroeconomic variables |
Output, Inflation, Interest rate, unemployment |
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Difference between nominal GDP, real GDP, and GDP deflator |
nominal GDP: Real GDP x GDP deflator real GDP: Nominal GDP/GDP deflator GDP deflator: nominal GDP/real GDP |
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Difference between stock and flow |
stock: a variable measured as a quantity at a point in time flow: A variable measured as a quantity per unit of time |
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Exogenous vs. endogenous variables |
Exogenous: A variable that a particular model takes as given; a variable whose value is independent of the model's solution Endogenous: A variable that is explained by a particular model; a variable whose value is determined by the model's solution |
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Components of GDP Expenditure |
Y = C + I + G + NX C > G > I > NX |
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Real vs. nominal variable |
The difference between real and nominal is the interest rate |
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CPI vs. GDP deflator |
Know the equations for Laspeyres (fixed weight) and Paasche (changing weight) CPI usually overstates prices. Accounts for subsitution and quality change but excludes exports and investment. social security gives a little more cushion for retirees |
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Household survey vs. Establishment survey |
Household survey: over 16 looking for a job Establishment survey: talks about amounts of jobs |
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Labor force |
L = E + U Over 16 and actively looking for a job Discouraged workers, students, and homemakers are not in the workforce |
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Derive the Income shares to capital and labor from firm real profit function |
Y = MPK*K + MPL*L + Pr |
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Cobb-Douglas production function properties |
*Constant returns to scale *Constant capital and labor shares of income |
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Demand function |
Y = C(Y-T) + I(r) + G |
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National Savings |
I(r) = (Y - T - C) + (T - G) National Savings = Personal Savings + Public Savigs |
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What shifts S in the National Savings and Investment graph? I(r)? |
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3 main characteristics of money |
(1) Store of value (2) medium of exchange (3) unit of account |
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Progression of Money |
Barter, Commodity Money, Fiat Money Commodity Money: Money that is intrinsically useful and would be valued even if it did not serve as money Fiat money: Money that is not intrinsically useful and is valued only because it is used as money |
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Measures of money or monetary aggregates |
C=currency, M1=currency+demand deposits+traveler's checks and other checkable deposits, M2=M1+retail money market mutual fund balances+savings deposits+small time deposits, M3 |
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Quantity theory of money |
MV = PY Supply: (M/P)^S = Y/V Demand: (M/P)^D = kY where k is just some constant Equilibrium (M/P)^D = Y/V or k = 1/V Quantity theory implies: %changeM + %changeV = %changeP + %changeY |
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Seignorage |
The revenue raised by the government through the creation of money; also called the inflation tax |
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Fisher Equation |
i = r + π r is determined by I(r) = Y - C - G π is determined by %changeM + %changeV = %changeP + %changeY |
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Expected inflation |
Rate of inflation that workers, businesses and investors think will prevail in the future, and that they will therefore factor into their decision-making π^e |
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Classical dichotomy |
Separation f real and nominal variables in the classical model, which implies that nominal variables do not influence real variables |
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Natural rate of unemployment |
U/L |
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job separation rate |
The rate of those losing their jobs |
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job finding rate |
the rate at which laborers find new employment |
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steady state unemployment |
fU = sE |
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frictional unemployment |
unemployment caused by the time it takes to search for and receive a job causes: imperfect information, sectoral shifts, etc. |
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What are the effects of public policy for frictional unemployment? |
publicly funded retraining programs, job posting sites, unemployment insurance |
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structural unemployment |
unemployment arising from wage rigidity and job rationing |
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Causes of structural unemployment |
minimum wage, labor unions, efficiency wages |
