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OU Macro Econ 1113

For Final Exam

QuestionAnswer
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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