Econ Final Exam

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There are growth miracles and growth ______.

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105 Terms

1

There are growth miracles and growth ______.

disasters

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2

Everyone used to be _______.

poor

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3

GDP per capita varies enormously ________.

across nations

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4

if a country grows at x% per year, their GDP will double after 70/x years

rule of 70

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5

the market value of all final goods and services produced within a country in a year

gross domestic product (GDP)

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6

What does the GDP not include?

intermediate goods

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7

What is the GDP formula?

GDP = C + I + G + NX

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8

What does each letter in the GDP formula stand for?

C = consumption spending

I = investment spending

G = government purchases

NX = net exports

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9

private spending on final goods and services

consumption spending

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10

private spending on tools, plants and equipment used to produce future output (includes consumers purchasing homes)

investment spending

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11

spending by all levels of government on final goods and services (doesn’t include transfer payments)

government purchases

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12

exports - imports

net exports

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13

What is the factor income approach formula?

Y = employee compensation + rent + interest + profit

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14

Real GDP is a good measure of what?

standard of living of a country

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15

What are some of the problems associated with GDP?

doesn’t count the underground economy, non-priced production, leisure, negative externalities (bads), and distribution of income

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16

GDP is ________ with consumption and investment.

pro-cyclical

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17

What does the GDP being pro-cyclical with consumption and investment mean?

investment is usually greater than real GDP when GDP is increasing and it’s less than GDP when GDP is decreasing

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18

GDP is _______ with the unemployment rate.

counter-cyclical

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19

the market value of all final goods and services produced by a country’s permanent residents, wherever located in a year

gross national product (GNP)

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20

How do you calculate GDP per capita?

GDP/population

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21

How do you calculate the growth rate?

(X2-X1/X1)x100%

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22

nominal variables that are adjusted for inflation

real variables

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23

short-run movements in real GDP around a long-term trend in real GDP

business cycle

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24

shows a relationship between output and the factors of production

production function

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25

What are the factors of production?

capital and labor

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26

How is the production function written?

f(A,K,eL) or f(K) in the solow model

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27

the stock of tools including machines, structures, and equipment

physical capital

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28

productive knowledge and skills that workers acquire through educatio9n, training, and experience

human capital

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29

knowledge about how the world works that’s used to produced goods and services

technological knowledge

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30

increase in output caused by the addition of one more unit of capital

marginal product of capital (MPK)

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31

As output increases, what does the marginal product of capital do?

diminishes

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32

In the Solow Growth Model, when a country is at its steady state, what is happening to the investment?

there is no new net investment

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33

What does being at steady state mean?

depreciation = new investment (replacing the capital that depreciated

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34

If there is a depreciation increase, the country has a ______ level of steady-state capital.

lower

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35

If there is a depreciation decrease, the country has a ______ level of steady-state capital.

higher

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36

If there is a savings increase, the country has a _______ level of steady-state capital.

higher

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37

If there is a savings decrease, the country has a ______ level of steady-state capital.

lower

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38

When do countries grow faster?

when they are farther away from their steady-state level of capital

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39

the tendency for poorer countrues to grow faster than richer countries and thus for poor and rich countries to converge in income

conditional convergence

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40

all countries income will converge, regardless of their steady-state level of capital (little evidence of this)

absolute convergence

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41

What does it mean that ideas are non-rivalrous?

two people can get them at the same time without reducing the other person’s

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42

A person is counted as unemployed if they satisfy these 5 categories…

16 or older

aren’t in prison

aren’t in military

actively looking for a job

don’t have a job

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43

A person is counted as employed if they satisfy all 3 of these conditions…

16 or older

aren’t in prison

have a job

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44

Who is included in the labor force?

unemployed and employed

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45

How do you calculate the labor force participation rate?

(labor force/non-institutionalized working age population)x100%

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46

The unemployment rate doesn’t count who?

discouraged workers and the underemployment rate

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47

workers who have given up looking for work but would still like to have a job

discouraged workers

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48

measures how well matched people are to their jobs

underemployment rate

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49

short-term unemployment caused by difficulties of matching employee to employer

frictional unemployment

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50

persistant, long-term unemployment caused by long-lasting shocks or permanent changes in the economy

structural unemployment

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51

What can cause structural unemployment?

minimum wage, employment laws and unions

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52

short-term unemployment that increases in recessions and declines during expansions

cyclical unemployment

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53

How do you calculate the natural rate?

structural + frictional unemployment

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54

increase in the average level of prices

inflation

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55

percentage change in prices from one period to the next

inflation rate

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56

a decrease in the average level of prices

deflation

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57

reduction in the inflation rate

disinflation

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58

measures the average basket of goods bought by a typical american consumer

consumer price index (CPI)

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59

The consumer price index only counts what?

final goods and services

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60

measures average price recieved by producers

producer price index

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61

The producer price index only counts what?

intermediate and final goods and services

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62

What is the most widely used measure of the change in prices?

CPI

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63

What are two challenges that occur in measuring the CPI?

change in goods

change in the quality of goods

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64

Unexpected inflation benefits who?

the borrower and harms the lender

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65

Less than expected inflation benefits who?

the lenders and harms borrowers

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66

when people mistake changes in nominal prices for changes in real prices

money illusion

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67

The formula for the relationship between the nominal and real rates of return is…

i-pi

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68

What do the symbols in the real rate of return formula stand for?

i = nominal interest rate

pi = inflation rate

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69

tendency of nominal interest rates to rise with expected inflation rates

fisher effect

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70

Fisher effect formula

i = Epi + r

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71

Quantity theory of money formula:

M(→)+v(→)=P(→)+Yr(→)

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72

What do the letters stand for in the quantity theory of money formula?

M = money supply

v = velocity

P = price level

Yr = real GDP

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73

average number of times a dollar is spent on final goods and services in a year

velocity of money

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74

The source of inflation is most of the time…..

money supply

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75

shows all the combinations of inflation and real growth that are consistent with a specified rate of spending growth

aggregate demand curve

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76

The AD curve has a slope of what?

-1

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77

Shocks to velocity are temporary, so in the long run, what happens to changes in real growth and inflation?

there will be no long run changes

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78

Shocks to the money supply tend to be permanent, so in the long-run, the change in the money supply becomes _____________.

inflation or disinflation

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79

currency + total reserves held at Fed

monetary base

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80

currency + checkable deposits

M1

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81

M1 + savings deposits, money market mutual funds and small time deposits

M2

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82

ratio of reserves to deposits

reserve ratio

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83

What is the formula for the reserve ratio?

1/MM

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84

amount by which the money supply expands with each dollar increase in reserves (inverse of reserve ratio)

money multiplier

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85

What is the formula for the money multiplier?

1/RR

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86

The Fed has 2 jobs…

price stability (low and constant inflation)

full employment (seen through high growth)

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87

The Fed is more effective at dealing with which types of shocks instead of real shocks?

AD shocks

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88

change in reserves x MM

change in the money supply

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89

What happens in an open market purchase?

the Fed buys bonds, increasing the money supply

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90

What happens in an open market sale?

the Fed sells bonds, decreasing the money supply

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91

What does the US government use tax money on?

social security

defense

health care

unemployment insurance

payments on debt

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92

tax that increases when income increases

progressive tax

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93

tax that has a constant tax rate

flat tax

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94

tax that decreases with income

regressive tax

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95

tax rate paid up on an additional dollar of income

marginal tax rate

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96

How do you calculate the average tax rate?

total tax payment/total income

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97

annual difference between federal spending and revenues

deficit

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98

goods and services that a private sector are likely to purchase

substitutable government spending

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99

gods and services that the private sector aren’t likely to purchase

non-substitutable government spending

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100

If a recession occurs after a decrease in AD, it’s more effective for the government to increase spending on what type of goods?

non-substitutable

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