Macro Exam 2

Front 1

National Income Accounting Identity

Back 1

Aggregate Income = Aggregate Output = Aggregate Expenditure/Demand

Front 2

Expenditure Approach to Calculating GDP

Back 2

C + I + G + NX

Front 3

Consumption (types of goods)

Back 3

durable goods: goods that last longer than one year (fridge, car, tv) 12%.
non-durable goods: goods that get consumed (food, clothes, gas) 22%.
services: buying someone elses time/expertise (haircut, doctor) 66%


All together consumption is 71 % of GDP

Front 4

Investment

Back 4

Gross Private Domestic Investment

22% of GDP

Front 5

Government Spending

Back 5

20% of GDP

Front 6

Net Exports

Back 6

Exports - Imports

-3% of GDP

Front 7

Potential Output

Back 7

highest amount of output an economy can produce from existing production processes & resources

Front 8

Economic Growth Calculation (per capita)

Back 8

Real GDP/population = real GDP per capita

Front 9

Sources of Economic Growth

Back 9

1. Growth Compatible Institutions
2. Capital Accumulation
3. Available Resources
4. Technological Improvements
5. Entrepreneurship

Front 10

Growth Compatible Institutions

Back 10

laws, patents, copyrights, etc.

Front 11

Capital Accumulation

Back 11

-physical capital: desks, tables, machines, buildings.
-human capital: skill, ability, education.
-social capital: traditions, clubs, churches.

Front 12

Available Resources

Back 12

-resources must be relevant to current production
-improve the resource

Front 13

Technological Improvements

Back 13

-need money$$ for research and development
-competition, incentives to be better than other companies

Front 14

Entrepreneurship

Back 14

-how to promote it??
-find them and EDUCATE them

Front 15

Aggregate Supply

Back 15

relationship between the price level in the economy and the quantity of aggregate output supplies, other things equal.

Front 16

Aggregate Demand

Back 16

inverse relationship between the price level in the economy and the quantity of aggregate output demanded.

Front 17

Consumer Price Index (CPI)

Back 17

consumer goods

Front 18

Producer Price Index (PPI)

Back 18

producer goods

Front 19

GDP Deflator

Back 19

all GDP goods

Front 20

Factors that Shift Aggregate Demand

Back 20

1. Foreign Income
2. Exchange Rates
3. Expectations
4. Distribution of Income
5. Monetary and Fiscal Policy

Front 21

Foreign Income

Back 21

-if foreign income increases then exports will increase, then AD will increase because other countries have more money to buy our products
-if foreign income decreases then foreign income decreases and AD decreases

Front 22

Exchange Rates

Back 22

-if US $ are cheap relative to foreign currency then exports will increase and AD will increase
-if US $ are expensive relative to foreign currency then exports will decrease and AD will decrease

Front 23

Expectations

Back 23

-if businesses expect consumer demand/spending to increase then they will invest causing investments to increase and AD will increase
-if businesses expect consumer demand/spending to decrease then they wont invest causing investment to decrease and AD decreases

Front 24

Distribution of Income

Back 24

a.) -if wages increase then consumer spending will increase and AD will increase
-if wages decrease then consumer spending will decrease and AD will decrease
b.) - if profit increases, savings increase, there is no change in AD
- if profit increases then investment increases and AD increases
-if profit decreases then savings decreases and there is no change in AD
-if profit decreases then investment decreases and AD decreases

Front 25

Monetary Policy

Back 25

-interest rates increase, investment decreases, AD decreases
-interest rates decrease, investment increases, AD increases

Front 26

Fiscal Policy

Back 26

Government Spending:
-if government spending increases, AD increases
-if government spending decreases, AD decreases
Taxes:
-if taxes go up then consumer spending decreases and AD decreases
-if taxes go down then consumer spending increases and AD increases
Transfer Payments:
-if transfer payments increase then consumer spending increases and AD increases
-if transfer payments decrease then consumer spending decreases and AD decreases

Front 27

Factors that Shift Aggregate Supply

Back 27

1. Changes in input prices
2. Productivity
3. Import Prices
4.Excise and Sales Tax

Front 28

Changes in Input Prices

Back 28

-if the price of inputs increase then SAS decreases
-if the price of inputs decrease then SAS increases

Front 29

Productivity

Back 29

-if productivity increases then SAS increases
-if productivity decreases then SAS decreases

Front 30

Import Prices

Back 30

-if the price of imports increases then SAS decreases
-if the price of imports decreases then SAS increases

Front 31

Excise & Sales Tax

Back 31

-if taxes increase then SAS decreases
-if taxes decrease then SAS increases

Front 32

Expansionary Policy to fix Recessionary Gap

Back 32

Goal: increase AD
Fiscal policy:
1. lowering taxes, increase C, increase AD
2. increase transfer payments, increase C, increase AD
3. increase government spending, increase AD
Monetary policy:
1. lower interest rates to increase investments to increase AD

Front 33

Contractionary Policy to fix Expansionary Gap

Back 33

Goal: decrease AD
Fiscal Policy:
1. increase taxes to decrease consumption which decreases AD
2. decrease transfer payments to decrease consumption to decrease AD
3. decrease government spending to decrease AD
Monetary policy:
1. increase interest rates to decrease investment to decrease AD

Front 34

Demand-Pull Inflation

Back 34

increase AD

Front 35

Cost-Push Inflation

Back 35

decrease SAS (stagflation)

Front 36

mpc + mps =

Back 36

1

Front 37

marginal propensity to consume (mpc)

Back 37

Consumption

Front 38

marginal propensity to save (mps)

Back 38

Savings

Front 39

Disposable Income =

Back 39

Income (Y) - Net Taxes (NT)

Front 40

Consumption Function

Back 40

C = a+mpc*Y where NT = 0

Front 41

Autonomous Consumption (a)

Back 41

consumption independent of the level of income (C when Y=0)

Front 42

Induced Consumption

Back 42

consumption dependent on the level of income (mpc*y)

Front 43

Investment

Back 43

relationship between investment and interest rate

Front 44

Aggregate Expenditures =

Back 44

C + I + G + NX

Front 45

Simple Spending Multiplier

Back 45

(1/1-mpc)

Front 46

Equilibrium Y =

Back 46

(1/1-mpc)(a + I + G + NX)