Download ECON 104: Macroeconomics Exam Review - Key Concepts and Definitions and more Exams Economics in PDF only on Docsity!
ECON 104, GOFFE, PSU 2024 EXAM
GRADED A+ | VERIFIED & UPDATED
"Nominal Interest Rate - CORRECT ANSWER The stated interest rate on a loan"
"Real Interest Rate - CORRECT ANSWER Nominal Interest Rate minus the inflation rate"
"GDP Deflator Equation - CORRECT ANSWER (Nominal GDP/ Real GDP) x100"
"Which Price Index measures the largest number of goods/services? - CORRECT ANSWER GDP
Deflator"
"Core Rate of Inflation - CORRECT ANSWER shows long-run trends in the price level"
"Total Factor Productivity - CORRECT ANSWER Portion of output not explained by the amount of
inputs used in production"
“GDP - CORRECT ANSWER the market value of all FINAL goods and services produced in a country
during a period of time."
"GDP equation - CORRECT ANSWER GDP(Y)=C (consumption) + I (investments) +G (gov purchases) +NX
(net exports)"
"Net Exports - CORRECT ANSWER Exports-imports"
"Real GDP - CORRECT ANSWER Value of economic output adjusted for inflation or deflation"
"Nominal GDP - CORRECT ANSWER GDP evaluated at current market prices which doesn't account for
inflation/deflation"
"final goods - CORRECT ANSWER finished products purchased by the final user"
"U.S. GDP 2016 (2nd quarter) - CORRECT ANSWER $18.4 Trillion"
"GDP per capita - CORRECT ANSWER Measure of average income per person in a country per year"
"U.S. GDP per capita 2016 - CORRECT ANSWER $55,800"
"Money $$$$$$$$$ - CORRECT ANSWER An asset that does each of the following:
1.) Medium exchange used for purchases 2.) A store of value 3.) Unit of accounting 4.) Standard of deferred payment"
"M1 - CORRECT ANSWER Cash and checkable deposits"
"M2 - CORRECT ANSWER M1+ Savings Accounts"
"Interest Rate - CORRECT ANSWER rate at which money is borrowed and lended"
"FED's Dual Mandate - CORRECT ANSWER To promote effectively the goals of 1)maximum
employment, 2)stable prices, and moderate long-term interest rates"
"Monetary Policy - CORRECT ANSWER Changes in the interest rates,M1, and M2 to achieve dual
mandate goals"
"Fiscal Policy - CORRECT ANSWER Changes in federal taxes and expenditures. Controlled by President
and Congress" "If federal taxes fall, all else equal, GDP will ____________________ and Government spending will
_________________________. - CORRECT ANSWER GDP will rise
G will not change"
"GDP Deflator - CORRECT ANSWER A way to measure prices. The GDP Def measures the avg prices in
the economy through a comparison to the base year where the value is 100."
"Inflation - CORRECT ANSWER a rise in prices"
"Deflation - CORRECT ANSWER a fall in prices"
"Labor Force - CORRECT ANSWER total number of people who have jobs plus the number of people
who do not ave jobs, but are actively looking for one."
"Unemployment Rate - CORRECT ANSWER Percentage of labor force that is unemployed"
"Discouraged Workers - CORRECT ANSWER People available for work, who are not actively looking for
a job"
"Labor Force Participation Rate - CORRECT ANSWER Percentage of the working-age population in the
labor force (% of those who are legally eligible to work, i.e. 16+)"
"Efficiency Wage - CORRECT ANSWER A higher than market wage that a firm pays to increase worker
productivity" Why? Because food and energy prices fluctuate too much, and therefore skew the CPI to make it look better or worse than it actually is"
"What harm comes from unanticipated inflation? - CORRECT ANSWER 1.) Unanticipated inflation can
reduce real wages 2.) Unanticipated inflation can reduce real interest rates"
"What harm comes from anticipated inflation? - CORRECT ANSWER 1.) Menu costs
2.) Value of money declines"
"Zero-sum - CORRECT ANSWER One person's (or group's) gain comes as a loss for another
EX: poker. When you win money, other people lose money."
"Growth equation - CORRECT ANSWER g=(Xn/Xo)^(1/n) -
g= (final value/ initial value) ^(1/years between initial and final) -1"
"Growth over n years - CORRECT ANSWER Xn = (1+g)^(n) -Xo"
"Rule of 70 - CORRECT ANSWER Easy tool to use in order to find out how long it will take for an
economy to double in size. Years to double= (70/growth rate)"
"China's annual growth rate - CORRECT ANSWER 11.5%"
"GDP per capita eqation - CORRECT ANSWER (Y/Pop) = (L/Pop) (Y/L)
GDP per Person = (# of workers in the economy/ population) (Labor Productivity)"
"Labor Productivity - CORRECT ANSWER How much the average worker produces in a year"
"Real Price equation - CORRECT ANSWER (CPI base year/ CPI now) x Nominal Price"
"Technology - CORRECT ANSWER Technology increases production without an increase in the amount
of Capital (K) or Labor (L)"
"Types of Technology - CORRECT ANSWER 1.) Better Capital (K)
Ex: Boeing improving their over-head bins 2.) Better Organized Production Ex: UPS trucks only turning right on their routes 3.) More Human Capital (K) Ex: What's between the ears --> Knowledge"
"Per worker production function - CORRECT ANSWER "
"Aggregate Production Function - CORRECT ANSWER Inputs: Output:
K (Capital) Real GDP L (Labor) --> Technology--> Intermediate Goods Entreprenuership"
"Parts of I (Investment) - CORRECT ANSWER 1.) New Capital (K)
2.) Additions to Inventory 3.) New Homes & Apartments"
"Labor Productivity Equation (Y/L) - CORRECT ANSWER (Y/L) = A (K/L) ^.
*A= TFP (Total Factor Productivity)"
"Long Run Growth rate of the U.S. - CORRECT ANSWER roughly 2%"
"What causes real incomes to rise? - CORRECT ANSWER Workers becoming more productive"
"Correlation between human health and economic growth - CORRECT ANSWER Human health
improves as the economy grows"
"What happened to the U.S.'s per-worker production function from 1961-2015? - CORRECT ANSWER
Moved right along the curve, and the entire curve shifted up."
"Are natural resources a part of the per-worker production function? - CORRECT ANSWER Nope"
"Market definition - CORRECT ANSWER People and firms freely buying and selling"
"Institution definition - CORRECT ANSWER a company or organization that deals with the distribution
of money, goods, and services in an economy."
"Numbers from the Great Recession (2007-2009) - CORRECT ANSWER Real GDP: -4.2%
Unemployment Rate: + 4.5% Length: 18 months"
"Depression definition - CORRECT ANSWER A depression is a sever recession"
"Great Depression facts - CORRECT ANSWER 1929-1933 (peak)
Unemployment Rate roughly 20-25% Real GDP went down 27%"
"Causes of a Recession - CORRECT ANSWER 1.) Monetary Policy (to reduce inflation)
2.) Oil Shock 3.) Fiscal Policy 4.) Financial Policy *Monetary policy and oil shocks are the two most common causes"
"Aggregate Demand - CORRECT ANSWER The total demand for final goods or services in an economy
at a given time"
"Aggregate demand equation - CORRECT ANSWER AD= C + I + G + NX"
"Relationship between consumption and GDP - CORRECT ANSWER Consumption is 67% of GDP"
"Current rate of unemployment - CORRECT ANSWER Roughly 5.1%"
"What percentage of unemployed people have been unemployed for more than 27 weeks? - CORRECT
ANSWER Roughly 30%. Higher than average."
"Net Exports relationship to GDP - CORRECT ANSWER -2% of GDP"
"Relationship between Government Purchases and GDP - CORRECT ANSWER 19% of GDP"
"Relationship between Investments and GDP - CORRECT ANSWER 15% of GDP"
"Costs definition - CORRECT ANSWER what businesses pay for the things they purchase"
"Curve shifts: G increases - CORRECT ANSWER AD shifts right"
"Curve shifts: Interest Rates Rise - CORRECT ANSWER AD shifts left"
"Curve shifts: Oil Prices fall - CORRECT ANSWER SRAS shifts right"
"Curve shifts: Taxes increase - CORRECT ANSWER AD shifts left"
"Curve shifts: G decreases - CORRECT ANSWER AD shifts left"
"Curve shifts: Int Rates fall - CORRECT ANSWER AD shifts right"
"Curve shifts: Oil Prices rise - CORRECT ANSWER SRAS shifts left"
"Curve shifts: Taxes decrease - CORRECT ANSWER AD shifts right"
"Curve shifts: Price Level increases - CORRECT ANSWER Shift up along the AD curve"
"Curve shifts: G increases and Taxes increase - CORRECT ANSWER AD could shift left or right. Depends
on which increase is greater."
"Curve shifts: U.S. $ depreciates in value compared to rest of world - CORRECT ANSWER AD shifts
right"
"Curve shifts: Oil Prices Fall - CORRECT ANSWER P decreases
Y Increases"
"Curve shifts: Taxes fall - CORRECT ANSWER P and Y both increase"
"Curve shifts: $ loses value - CORRECT ANSWER P and Y both Increase"
"Price level rises when not in equilibrium - CORRECT ANSWER Causes Spending to decrease, but
production to increase."
"Security definition - CORRECT ANSWER Financial asset that can be bought and sold
EX: stocks and bonds"
"Bond (...James Bond) definition - CORRECT ANSWER A type of security that is sold by large businesses
or governments"
"How do bonds work? - CORRECT ANSWER Consumer borrows from a willing investor
"Ways to balance the budget over the business cycle. - CORRECT ANSWER 2 ways, called "Counter-
cyclical fiscal policy" 1.) Automatic Stabilizers ex: Unemployment Insurance 2.) Discretionary Fiscal Policy takes an act of congress and Pres. signature ex: Recovery Act of 2009"
"Since the Great Recession, how has fiscal policy effected growth? - CORRECT ANSWER It has slowed
growth, and kept it at a more controllable rate"
"intermediate goods - CORRECT ANSWER a good that is transformed in the production process
EX: flour gets turned into bread, therefore it is an intermediate good" "Over a year, if nominal salaries increased 4% and CPI increased 1%, then real salaries would increase
how much? - CORRECT ANSWER 3%. Nominal salaries don't include inflation, so 4% (nom) - 1%
(Inflation) = 3% (Real salary)"
"CPI - CORRECT ANSWER Consumer Price index, measure of the average prices of a basket of
consumer goods such as transportation, food, and medical care"
"Why do economists use the core rate of inflation? - CORRECT ANSWER To remove transitory and
volatile factors.
"How does Technology help? - CORRECT ANSWER With the addition of technology businesses will
benefit because they produce more without having to pay more workers, and they don't have an increase in Capital (K). With the addition of technology the per-worker production function curve will shift up."
"In the U.S. which is smaller Real GDP per person, or Labor Productivity (Y/L)? - CORRECT ANSWER
Real GDP per person. Real GDP per person is roughly $55,800 while Y/L is prod per worker and roughly $111,000. Y/L would be larger because it grows as each worker produces more, while GDP grows as each worker earns more."
"How are lay offs essential for growth? - CORRECT ANSWER 1.) More output by fewer workers leads to
higher real wages 2.) New industries employ those who've been laid off 3.) Labor saving technology is a the key to economic prosperity"
"What government action would be most harmful to economic growth? - CORRECT ANSWER Fixing
Prices because flexible prices help economies work more efficiently by producing incentives. So, fixed prices don't create incentives."
"More recession causes - CORRECT ANSWER 1.) Rapid growth and Real GDP> Potential GDP
2.) More inflation than expected (More than FED's goal) 3.) FED slows economy with higher interest rates"
"Reserves Definition - CORRECT ANSWER A bank's deposits at the FED"
"Required Reserves - CORRECT ANSWER Banks must set aside a fraction of their customer's deposits
at the FED. This is called a required reserve ratio, or RR."
