Macro Theory – Exam 1 Vocabulary Review

Key vocabulary terms and concise definitions covering consumption–leisure choice, production, taxation, and policy shocks from the lecture notes.

One-Period Budget Constraint

C = w (1–t) (h–l) + π – T ; links consumption, leisure, after-tax wage, profits, and taxes.

Profits (π) as Non-Labor Income

Dividend income received by households; alters wealth and labor supply via income effects only.

Exogenous Variable

Model input determined outside the system (e.g., G, z, h).

Cobb-Douglas Growth Elasticity

With Y = z K^0.7 N^0.3, a 1% rise in N raises GDP by 0.3%.