Midterm 2 Econ

What two things cause shifts in the demand for labor?

Changes in price of output and productivity

When real wage INCREASES, what shifts left?

Demand of labor

When real wage DECREASES, what shifts left?

Supply of labor

What two things cause shifts in the supply of labor?

Changes in the working age population and change in working age population willing to work

Name the three types of unemployment

Structural frictional and cyclical

Formula for Saving

Current income minus spending on current needs

Formula for saving rate

saving over income

Formula for wealth

assets minus liabilities

Is saving a stock or flow value?

Flow

Is wealth a stock or flow value?

Stock

Formula for change in wealth

Saving plus capital gains minus capital losses

What are the three reasons for household saving?

Life cycle saving
Precautionary saving
Bequest saving

As real interest rate goes up, how does saving change?

Saving increases

National saving formula

S = Y-C-G

Private saving formula

Sprivate = Y-T-C

Public saving formula

Spublic = T-G

Saving is the sum of what?

Private and public saving

The variable T means what?

Net taxes

Net taxes formula

Total taxes minus transfer payments minus government interest payments

Private saving is the sum of what?

Household and business saving

The surplus of the government budget surplus is what?

Public saving

What two factors affect investment decisions?

Costs and benefits

What is costs of investment?

Price of new capital goods
Real interest rate

Does real interest rate shift the supply and demand curves in SAVING AND INVESTMENT?

No

What is money?

Asset used to make purchases

What are the three functions of money?

Medium of exchange
Unit of account
Store of value

What is M1?

What causes cyclical unemployment?

Business cycle

What equals natural unemployment?

structural plus frictional

What is u*?

Natural rate of unemployment

What is u?

Rate of unemployment

The formula for cyclical unemployment is?

Unemployment minus natural unemployment

Okun’s Law

What causes slowdowns or speed ups in REAL GDP growth?

Potential output growth
Output gaps develop

Do prices change immediately with a change in demand?

No

How do firms meet demand in the SHORT run?

Preset prices

How do firms meet demands in the LONG run?

Total spending analysis

What is the equilibrium of an open economy?

SK + I = I

What does unemployment do during recessions?

Rise

Which type of unemployment is associated with recessions?

Cyclical

Which industries are most affected during recessions?

Durable goods

How do recessions affect the rate of inflation?

It declines

What does Y* mean?

Potential output

Output gap formula