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Macro test 1
| Question | Answer |
|---|---|
| value added is... | Value of output MINUS value of intermediate inputs |
| the value added to the loaf of bread sold at $5 dollars if $3 so how much money did the Intermediate input (flour) cost | $2 |
| what is net exports | exports - imports |
| are transfer payments like a social security checks included in the Gdp | no they are not because it is government moving money from one account to another. not a new generation of money |
| what does real gdp | keeps prices constant and removes the effect of inflation to place emphasis on production growth |
| what is catch up growth | when countries with initial little capital invest in more physical capital per worker their impact on productivity is more significant. |
| who experiences catchup growth | developing countries |
| what is solows steady state | when investments EQUAL depreciation. the new capital being added replaces the capital that is wearing out keeping growth steady at net zero |
| people who are not actively seeking employment are | not included in the labor force |
| the percentage change in Real GDP + The percentage change in prices is equal to | the percentage change in nominal GDP |
| what does constants return to scale imply | that outputs will double if you double all inputs (L,H,K) |
| a country having "government stability" and "property rights" facilitating the environment for economic growth is a product of what | institutions |
| economies of scale | the average cost decreases as product increases |
| why does economies of scale happen | usually when a company is experiencing specialization and becoming quicker and better at production allowing them to spread cost and lower the unit price of production |
| Labor productivity | measures the output produced per hour of work and how efficiently labor is transformed to output |
| does technological progress sustain economic growth in the long run | yes, because new ideas and innovations do not wear out like physical capital ( a lawnmower) |
| technological growth is not | automatic requires incentives and protections such as research and development subsidies and intellectual property rights protection |
| GDP total income perspective | total wages + total perspective |
| GDP Total spending perspective | Y= C + I + G + NX |
| GDP Total output perspective | total sales - cost of inputs |
| GDP per capita is | total gdp divided by the total population which measures the average output per person |
| why does total spending = total income | because every dollar spent becomes someone else's income |
| value added does what | avoids double counting intermediate goods |
| if nominal gdp is $21 trillion and real gdp is $18 what is the cause | prices have risen above base year |
| nominal gdp changes because of | output growth and price changes |
| why is rule of 70 approximate | it assumes constant growth rate which rarely happens in reality |
| does technological progress increase labor | no it allows workers to produce more but it doesn't require them to work harder |
| unemployment rate can fall even if there are no new jobs because | people become discouraged and leave the labor force |
| what happens to the unemployment rate when people stop looking for work | it decreases |
| a recession would | decrease consumption and investment thus decreases gdp entirely |
| what are the strategy for explaining big numbers | downsizing large scale numbers to a per person since, compare big numbers to size of economy, compare big numbers to their own history, or use the idea of doubling |
| a dynamic labor market | makes finding a new job quickly because the people leaving a job are equal to the number of people receiving the job |
| employers prefer | a candidate who is already employed |
| long term unemployment makes people accessible to | employer discrimination, broader implication |
| marginally attached | available for work and have been searching for work in the last year but not in the last 4 weeks |
| discourage workers | hopeless and gave up searching for a job |
| involuntary part-time worker | want a full time job |
| underusing their skills | like a phd holder working at McDonalds |
| the equilibrium of unemployment when supply meets demand is | the natural rate at which the economy tends to return in the long run |
| what type of employment is nonexistent when the natural rate is present | cyclical |
| consumer price index | tracks prices of goods and services consumer buy updated 2 years (cost of living adjustments) |
| personal consumption expenditure | CPI + indirect consumptions ( employer paid insurance) no substitutions bias, updated monthly, federal reserve preferred measure |
| what are hysteresis | high unemployment can raise the natural unemployment rate |
| what does hysteresis create | slower job recovery |
| what does a effect does a high unemployment rate have on the government | it strains the government because income tax decreases generating less tax revenue |
| what are the social cost of unemployment | isolating, stressful, poor health, mental health issues |
| when should you look fora better job | while employed |
| how much expenses should you save up | 3-6 months worth |
| occurs because wages don't fall to bring labor demanded and supply into equilibrium | structural unemployment |
| efficiency wage | high wage to encourage an increase in worker productivity |
| what is the problem with effciency wage | it is usually above the equilibrium which means it produces more applicants to jobs avaible |
| what are the factors of structural unemployment | efficiency wage, institutional causes (minimum wage, union, job protection regulations ) |
| GDP measures | market value |
| price tag | weighs the importance of a good |
| unemployment due to the time it takes for employers to search for workers and for workers to each for job | frictional unemployment |
| what are the factors of frictional unemployment | information problems, not enough jobs that fit skills in community, unemployment insurance |
| inflation | a generalized rise in the overall level of prices, rise of cost of living, decrease in purchasing power |
| decrease in the overall level of prices | deflation |
| disinflation | prices are still rising, but at a slower pace than before |
| challenges of measuring the true cost of living (things cpi misses) | quality improvements that can hide price decreases, new products, substitution bias |
| inventory increases | falls under the investment category |
| core inflation | cpi or pce - excludes food and energy ( forecast underlying inflation trends0 |
| producer price index (PPI) | tracks prices of inputs (helps predict future consumer price changes) |
| GDP deflator | tracks prices of goods and services produced domestically ( includes capital goods and excludes inputs) |
| Money Illusion | the mistake to focus on nominal dollar amounts instead of inflation adjusted amounts |
| Money preforms 3 functions | money is a medium of exchange, money is a unit of account, money is a store of value |
| money is a medium of exchange | removes the ancient action of bartering by giving money in exchange of goods when there is a double coincidence of wants |
| money is a unit of account | a common unit people use to measure value |
| money is a store of value | lets you transfer purchasing power across time |
| what does hyperinflation do | erodes all functions of money |
| menu cost | the marginal cost/ physical cost of adjusting prices ( like how much it will cost to reprint a new menu with new prices) |
| shoe-leather cost | the time and effort of managing cash holdings |
| redistribution real value of debts shifts | the borrowers make more and the lenders lose more money |
| inflation fallacy | the mistaken belief that inflation destroys purchasing power (if price and wages rise together than purchasing power is unchanged |
| along the same aggregate production function , the level of _________ is the same | technology |
| what is an increase in dependency ration and what does it do | the increase of dependents like retirees and children which slow down economic growth |
| technological advancement is | the creation of NEW technology would increase production |
| Henry ford established | efficiency wage during the industrial revolution |
| a minimum wage that is above the equilibrium is | a price floor |
| frictional rate of unemployment + structural rate of unemployment = | equilibrium / natural rate |
Created by:
Zariii