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 year1 (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 year2 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 year2? 

Definition
50 ($10) = $500
20 (20) =$400
$500 + $400 = $900 


Term
Suppose in Econland only printers and fans are produced. In year1 (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 year2 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 year2? 

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
300250 = 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

Definition


Term

Definition


Term

Definition


Term

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 P_{1} = 2
my wage = $80,000 = nominal & real P_{2} = 1
nominal/price level
$100,000/2 = $50,000 = dad real wage
My dad (nominal), Me (real) 

