Cards

What are the three methods to compute GDP?

Production method, Income method, Expenditure method.

What term describes variables determined outside a model?

Exogenous variables.

What term describes variables explained by a model?

Endogenous variables.

What term describes the percentage change in GDP due to price changes?

GDP deflator.

What term describes the percentage of unemployed people in the labor force?

Unemployment rate.

What term describes the monetary value of final goods and services produced in an economy?

GDP.

What term describes the measure of change in the cost of living?

CPI (Consumer Price Index).

What term describes the relationship between inputs and outputs in an economy?

Production function.

What term describes the percentage of income spent on consumption when disposable income increases by one dollar?

Marginal propensity to consume (MPC).

What term describes the rate at which investors borrow, corrected for inflation?

Real interest rate.

What is the aggregate production function?

Y = F(K, L), where Y is output, K is capital, and L is labor.

What are the properties of a neoclassical production function?

Positive and diminishing marginal products, constant returns to scale, and satisfies the Inada conditions.

What is the marginal product of labor (MPL)?

MPL = ∂F(K, L)/∂L, measures the additional output produced by one more unit of labor.

What is the marginal product of capital (MPK)?

MPK = ∂F(K, L)/∂K, measures the additional output produced by one more unit of capital.

What is the Cobb-Douglas production function?

Y = AK^αL^(1-α), where A is total factor productivity, and α is the capital share.

What is the elasticity of substitution in the Cobb-Douglas production function?

The elasticity of substitution is 1.

What is the Leontief production function?

Y = min(K/a, L/b), where a and b are fixed proportions.

What is the CES production function?

Y = A [γ (A_K K)^(σ-1)/σ + (1-γ)(A_L L)^(σ-1)/σ]^(σ/(σ-1)), where σ is the elasticity of substitution.

What is the Stone-Geary production function?

Y = A(K - K̅)^α (L - L̅)^β, where K̅ and L̅ are minimum input requirements.

In a closed economy, the national income identity is __________.

Y = C + I + G.

The consumption function depends on __________.

disposable income (Y - T).

The marginal propensity to consume (MPC) is the change in __________ resulting from a $1 increase in disposable income.

consumption.

The investment function depends on the __________.

real interest rate.

The nominal interest rate equals the real interest rate plus __________.

inflation.

The equilibrium interest rate balances __________ and __________.

savings, investment.

An increase in government spending __________ investment due to crowding out.

decreases.

A decrease in taxes __________ savings because disposable income increases.

decreases.

An increase in investment demand __________ the equilibrium interest rate.

increases.

An increase in savings __________ the equilibrium interest rate.

decreases.

What is the Solow growth model?

A model that explains long-run economic growth through capital accumulation, labor force growth, and technological progress.

What is the aggregate production function in the Solow model?

Y(t) = A(t) K(t)^α L(t)^(1-α), where A(t) is technology.

What is the key equation for growth accounting in the Solow model?

g_Y(t) = g_A(t) + α g_K(t) + (1-α) g_L(t).

What is the steady state in the Solow model?

A long-run equilibrium where capital per worker and output per worker are constant.

What is the golden rule level of capital?

The level of capital that maximizes consumption per worker in the steady state.

What are the Kaldor facts?

Six empirical regularities about long-run economic growth, including constant growth rates of labor productivity and capital per worker.

What is the role of technological progress in the Solow model?

Technological progress drives long-run growth in output per worker.

What is the growth rate of output per worker in the steady state?

Equal to the growth rate of technological progress.

What is the formula for the average annual growth rate?

g_Y = (Y_{t+j}/Y_t)^(1/j) - 1.

What is the rule of 70?

The time it takes for a variable to double is approximately 70 divided by the growth rate in years.