# Shared Flashcard Set

## Details

ECON 110 Final
ECON 110 Final
22
Economics
12/14/2010

Term
 Suppose that in 1975 in Econland Bill made \$20,000 when the CPI was equal to 22.5. Today the CPI in Econland is equal to 135. What wage would Bill have to be earning to have the same real wage as he earned in 1975?
Definition
 x/135 = 20,000/22.5 x/135 = 888.9 x = \$120,000
Term
 Suppose GDP is currently \$1,000 and is growing at a rate of 8% annually, in 18 years GDP will equal what? (according to the rule of 72)
Definition
 72/8 = 9yr = \$2,000 18yr = \$4,000
Term
 Suppose that Caitlyn spends \$1,000 when she earns \$1,500 in after tax income and she spends \$1,900 when her after tax income is \$2,500. What is her marginal propensity to SAVE in this example?
Definition
 (\$1,900 - \$1,000)/(\$2,500 - \$1,500) \$900/\$1,000 = 0.9 = MPC MPS = 1 - MPC MPS = 0.1
Term
 Suppose the marginal propensity to consume is 0.80. There is an increase in goverment spending of \$200. According to the full multiplier effect what is the expected change in aggregate demand?
Definition
 \$200/MPS MPS = 1 - 0.8(MPC) \$200/0.2 = \$1,000 The AD curve shfts to the right by \$1,000
Term
 Suppose in Econland only printers and fans are produced. In year-1 (the base year) printers sell at a price of \$10 and 10 printers are produced and 20 fans are produced which sell for \$20 each. In year-2 50 printers are produced and they sell for \$80 each, also 20 fans are produced and they sell for \$20 each. What is the value of REAL GDP in year-2?
Definition
 50 (\$10) = \$500 20 (20) =\$400 \$500 + \$400 = \$900
Term
 Suppose in Econland only printers and fans are produced. In year-1 (the base year) printers sell at a price of \$10 and 10 printers are produced and 20 fans are produced which sell for \$20 each. In year-2 50 printers are produced and they sell for \$80 each, also 20 fans are produced and they sell for \$20 each. What is the value of NOMINAL GDP in year-2?
Definition
 50 (\$80) = \$4,000 20 (\$20) = \$400 \$4,000 + \$400 = \$4,400
Term
 Suppose there are 600 people above the age of sixteen in Econland. There are 320 people working, 80 people actively seeking employment, 70 retired workers and 130 discouraged workers. What is the labor force participation rate in Econland? (Round to the nearest % if need be)
Definition
 (workers + actively seeking)/(total people) 400/600 = 66.7%
Term
 Suppose there are 600 people above the age of sixteen in Econland. There are 320 people working, 80 people actively seeking employment, 70 retired workers and 130 discouraged workers. What is the unemployment rate in Econland?
Definition
 (actively seeking)/(working + actively seeking) 80/400 = 20%
Term
 Suppose that the SPI increased from 250 to 300 in one year! What would the inflation rate be?
Definition
 300-250 = 50 50/250 = 20%
Term
 If the population grows at 6% rate yearly we expect the population to be approximately 4x larger than it is today in 24 years.
Definition
 72/6 = 12 yr = double (2x) 24 yr = quadrouple (4x)
Term
 What is the equilibrium level of output in the simple Kaynesian model (fixed price model) if there are the following types of spending. Consumption = 350 + 0.80 Yd (remember disposable income is equal to income after taxes.) Investment Spending = 50, Government Spending = 100, and there are no taxes or net exports.
Definition
 Y = 350 + 0.8Y + 50 + 100 0.2Y = 350 + 50 + 100 0.2Y = 500 Y = 2,500
Term
 Consumption = 350 + 0.80 Yd (remember disposable income is equal to income after taxes.) Investment Spending = 50, Government Spending = 100, taxes = 50 and no net exports. If we used the tax multiplier how much would we expect output to increase or decrease by?
Definition
 0.2Y = 500 + 0.8 (50) 0.2Y = 540 Y = 2,700 (current answer) - (equilibrium output) 2,700 - 2,500 = 200 output would decrease by 200
Term
 Suppose the Fed sells \$1,000 worth of bonds to a commercial bank. Also suppose the reserve requirement is 20%. We expect the money supply to ................ by ................ if the money multiplier is in effet.
Definition
 1/0.20 = 5 5 (\$1,000) = \$5,000 decrease \$5,000
Term
 Suppose a country has a national debt of \$5,000 billion, and a budget deficit of \$130 billion. How much will its new national debt be?
Definition
 debt = %5,000 b <-- used to owe GDP = \$20,000 b deficit = \$130 b <-- what I borrowed   \$5,000 b + \$130 b = \$5,130 b     if there was a surplus: \$5,000 b - \$130 b = \$4,870 b
Term
 Suppose the Consumption function is C = 50 + 0.6 Yd. What is the marginal propensity to SAVE in this example.
Definition
 0.6 = MPC MPS = 1- MPC MPS = 0.4
Term
 Tax multiplier
Definition
 -MPC/1-MPC
Term
 Spending Multiplier
Definition
 1/(1-MPC)
Term
 Money Multiplier
Definition
 1/RR
Term
 GDP Gap
Definition
 cyclical unemployment (2)
Term
 Suppose that in Econland only Beer and Pizza can be produced and there are the following production possibilities: Pizza     0     1     2     3     4     5 Beer     40   37   32   24   14     0 If the price of one pizza in the world market is 6 beers, how many pizzas should be produced in Econland?
Definition
 40 - 37 = 3 37 - 32 = 5 32 - 24 = 8   3<6 5<6 8>6 want to be between as close to 6 beers without going over 6 beers, that way both pizza and beer makers are happy 2 pizzas
Term
 Suppose Mike can produce 4 pizzas in a day or 12 beers while Susan can produce 10 pizzas in a day or 60 beers. What is a price of pizza that both Mike and Susan would be willing to trade the good they have comparative advantage in producing with one another and they could both benefit from trade?   a. 1 pizza = 7 beer b. 1 pizza = 10 beer c. 1 pizza = 1 beer d. 1 pizza = 5 beer
Definition
 pizza   beer Mike       4       12          =3 beer/1 pizza Susan    10      60          =6 beer/1 pizza   a. 1 pizza = 7 beer b. 1 pizza = 10 beer c. 1 pizza = 1 beer d. 1 pizza = 5 beer both are happy because they are both gaining from sharing (comparative advantage)   comparative advantage
Term
 Suppose my dad made \$100,000 a year in 1984, but prices have fallen in half since that time! Suppose I currently make \$80,000 a year (that would be nice!). You have been asked to compare these two wages. Who earned (is earning) the higher nominal wage? Who earned (is earning) the higher real wage?
Definition
 dad wage = \$100,000 = nominal          P1 = 2 my wage = \$80,000 = nominal & real          P2 = 1 nominal/price level \$100,000/2 = \$50,000 = dad real wage My dad (nominal), Me (real)
Supporting users have an ad free experience!