Macro Econ Test 2

Front 1

Price Indexes

Back 1

allow us to monitor general trends in the prices of most goods and services/"the general price level"

Front 2

Consumer Price Index (CPI)

Back 2

weighted average or some prices that urban consumers pay (such as gas prices)
[(current cost of bundle)*100]/base year cost of bundle
when cost=price*qty

Front 3

Producer Price Index (PPI)

Back 3

weighted average of some prices that firms pay for commodities (such as crude oil prices)

Front 4

Inflation

Back 4

represented with pi symbol
percentage change in the price level betewen two periods
inflation in time period t+1=[(price level in period t+1)-(price level in period t)*100]/price level in period t

Front 5

Deflation

Back 5

P in t+1<P in t
has occurred rarely in U.S. since the Great Depression (over extended periods)
we may be in deflation now

Front 6

Nominal GDP

Back 6

the sum of current expenditures (what is spent)
OR
the sum of current year price*qty

Front 7

Real GDP

Back 7

The sum of the quantity*base year price
OR
(nominal GDP*100)/price level
OR
(nominal GDP*100)/GDP deflator

Front 8

GDP deflator

Back 8

(Nominal GDP*100)/Real GDP

Front 9

Which type of GDP is a better measure of production?

Back 9

Real (Y) GDP

Front 10

Changes in real GDP indicate changes in what?

Back 10

economic activity

Front 11

An increase in nominal GDP indicates what?

Back 11

An increase in production

Front 12

What must a saver have in order to have a positive real interest rate?

Back 12

an increase in the number of goods he/she can buy

Front 13

Which uses all goods: CPI or GDP Deflator?

Back 13

GDP Deflator

Front 14

Which uses a fraction of all goods: CPI or GDP Deflator?

Back 14

CPI

Front 15

Which changes frequently: GDP Deflator or CPI?

Back 15

GDP Deflator

Front 16

Which changes infrequently: GDP Deflator or CPI?

Back 16

CPI

Front 17

Which includes import prices: GDP Deflator or CPI?

Back 17

CPI

Front 18

Which does not include import prices: GDP Deflator or CPI?

Back 18

GDP Deflator

Front 19

Per Capita Income

Back 19

income/population

Front 20

Per Capita GDP

Back 20

GDP/population

Front 21

Growth Rate of GDP (%)

Back 21

[(GDP in t-GDP in t-1)*100]/GDP in t-1

Front 22

Estimated annualized percentage growth rate of real GDP for the 4th quarter of 2008

Back 22

-3.8%

Front 23

Living standards vary...

Back 23

widely across countries

Front 24

Living standards vary...

Back 24

widely across countries

Front 25

Due to different growth rates...

Back 25

rankings of nations by per capita income change over time

Front 26

What was the richest nation in the late 1800s?

Back 26

England/UK

Front 27

Which countries have a higher per capital real GDP today?

Back 27

US, Canada, Japan, Germany

Front 28

What country probably had the fastest growth rate since 1890?

Back 28

Japan

Front 29

A country's standard of lviing depends on...

Back 29

its ability to produce goods and services

Front 30

economies produce more (and enjoy higher living standards as a result) by having each worker...

Back 30

specialize in one or a few tasks, which increases productivity

Front 31

Productivity

Back 31

amount of goods and services produced for each hour of a worker's time

Front 32

Investing in capital allws an economy to produce more by

Back 32

expanding its PPF

Front 33

The opportunity cost of investment is

Back 33

the value of the consumption goods given up

Front 34

Countries with high investment rates tend to have...

Back 34

high growth rates

Front 35

Countries with high GDP tend to have...

Back 35

higher investment

Front 36

Investment tax credits (ITCs)

Back 36

reduce the cost of building new factories or buying new machines

Front 37

Investment tax credits (ITCs)

Back 37

reduce the cost of building new factories or buying new machines

Front 38

education

Back 38

improves human capital

Front 39

Government subsidies and grants

Back 39

promote research and development

Front 40

Patents, copyrights, property rights, and political stability increase the expected reware for investments. Less chance of loss due to

Back 40

theft

Front 41

Attract investment from

Back 41

other countries

Front 42

Political stability

Back 42

reduces the threat of losing investments

Front 43

Traditional growth theory (aka neoclassical growth theory)

Back 43

assumes that as an economy adds to its capital stock, each additional unit of capital will lead to less of an increase in per capital real GDP
Graph is y=k^(1/2)

Front 44

Diminishing marginal productivity

Back 44

in MICROeconomics; states that as one firm adds to its capital stock, each additional unit adds less to its output than the previous unit

Front 45

Diminishing Marginal Returns

Back 45

in MACROeconomics; states that as one firm adds to its capital stock, each additional unit adds less to its output than the previous unit

Front 46

catch-up effect

Back 46

convergence or absolute convergence; theory stating that at some future point, all economies will have roughly the same per capital real GDP

Front 47

Concerning convergence...

Back 47

economies are still a ery long time from convergence (50 years or more) OR convergence will not occur

Front 48

conditional convergence (or club convergence)

Back 48

all economies will converge to one of two or more levels of per capital real GDP depend on an economy's factors of production

Front 49

C+I+G+NX=

Back 49

C+S+T-TR

Front 50

C+S+T-TR=

Back 50

C+I+G+NX

Front 51

Disposable Income (Y of D)=

Back 51

C+S
AND
Y+TR-T where Y=income from production
SO
Y of D (which is GDP)=C+S+T-TR

Front 52

When does savings=investment?

Back 52

S=I+G+NX+TR-T
Substitute I for S
I=I+G+NX+TR-T
-I from both sides
0=G+NX+TR-T
+T on both sides
T=G+NX+TR
If savings=investment, then taxes=the sum of government purchases, government transfers and net exports

Front 53

In short term and long term...as Income (Y) increases

Back 53

Consumption (C) decreases

Front 54

Differences in the consumption and income graphs

Back 54

Interecept for short term data is larger or higher while long term data's intercept is 0
AND
slope for long term data is steeper

Front 55

In the short run, an increase in income of $1 leads to an increase in consumption of

Back 55

<$1

Front 56

In the long run, an increase in income of $1 leads to an increase in consumption of

Back 56

almost $1

Front 57

Marginal Propensity to Consume (MPC)

Back 57

(C2-C1)/(Y2-Y1)

Front 58

Marginal Propensity to Save (MPS)

Back 58

(S2-S1)/(Y2-Y1)

Front 59

MPC+MPS=

Back 59

1

Front 60

0<mpc
mpc<1

Back 60

at macro level, some will want to spend part and save part of extra income

Front 61

MPC could equal 0 or 1

Back 61

at a personal level one could save all or spend all extra income