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OU Macro Econ 1113
For Final Exam
| Question | Answer |
|---|---|
| Three Types of Unemployment (UE) | Frictional, Cylindrical, and Structural |
| Frictional UE | Caused by people changing jobs and new employees entering the work force, Desirable UE, Around 5%, 5% is also known as full emmployment |
| Cyclical UE | Caused by downturns in the business cycle, Undesirable, Solved by upturns in the business cycle |
| Structural UE | Caused by workers lacking marketable job skills, Undesirable, Solved by job training |
| Determinates of the Consumption Function | Disposable Income (Yd), Expectations Concerning Future Earnings and Prices, The Availability of Credit, The Existing Stock of Consumer Goods, The Level of Consumer Wealth |
| Average Propensity to Consume (APC) | The portion of current disposable income (Yd) that is spent on consumption. APC=C/Yd C=Total current consumption |
| Consumption Function (Definition) | The relationship between current disposable income (Yd) and current consumption expenditure (C). |
| Marginal Propensity to Consume (MPC) | The proportion of any additional current disposable income (Yd) that is spent on consumption. MPC=ΔC/ΔYd C=Total current consumption |
| Consumption Function (Equation) | C=a+b*Yd a=how much would be consumed if Yd were 0, b=the slope term, rise over run, MPC |
| Fisher Equation | i=r+πe, i=Nominal interest rate, r=Real interest rate, pie-e= expected inflation rate |
| Consumer Price Index (CPI) | (Current prices of a basket of consumer goods)/(prices of the same basket in a base period) |
| Real Value of Any Asset | (Nominal value, aka, current dollar value)/(General price level as measured by CPI) |
| The GDP Gap | The dollar value of all goods and services not being produced due to UE, Target GDP - Nominal GDP (Y*-Ye), |
| Costs of UE | Economic (GDP Gap), Non-Economic (high crime, suicide, drug, and mortality rate, political and marital instability) |
| The Two Macro Economic Problems | Unemployment (UE) and Inflation (π) |
| Effects of π | Economic (reduces the real value of any fixed value asset, and redistributes wealth from lender to borrower if unexpected), Non-Economic (people won't believe in contracts, and social instability) |
| Keynes Two APC/MPC Hypothesis | APC gets smaller as Yd increases, always 0<MPC<1 |
| Consumer Wealth | Financial (stocks, bonds, savings accounts, etc) and Durable Goods (Cars, Houses, Furniture, etc.) |
| Planned Total Expenditure (PTE) | Consumption(C)+Government(G)+Investment(I)+[Exports(X)-Imports(M)] |
| Inventory Adjustment Mechanism | The basic equilibrating force in the Keynesian Cross Model, when there are shortages or surpluses inventory is pulled or placed in storage |
| Fiscal Policies for UE and π | For UE raise G and lower T, for π lower G and raise T |
| Government Multiplier | Mg=1/1-MPC, Mg=ΔY/ΔG, with constant interest |
| Tax Multiplier | Mtax=-MPC/1-MPC, Mtax=ΔY/ΔT, with constant intrest |
Created by:
nobdow
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