# Shared Flashcard Set

## Details

Econ 201 Midterm 1 - Sui Luo
Macroeconomics Midterm 1 - Sui Luo
26
Economics
10/22/2012

Term
 Why is an economy's total income equal to its total expenditure?
Definition
 Every transaction has a seller and buyer Total expenditure = total income
Term
 What is GDP?
Definition
 Measures economy's total expenditure, total income, total production of goods and services
Term
 Consider two cars manufactured by Chevrolet in 2007. During 2007, Chevrolet sells one of the two cars to Sean for \$24,000. Later in the same year, Sean sells the car to Kati for \$19,000. The second automobile, with a market value of \$30,000, is unsold at the end of 2007 and it remains in Chevrolet’s inventory. The transactions just described contribute how much to GDP for 2007?
Definition
 \$54,000
Term
 What are the componenets of GDP
Definition
 Y = C + I + G + NX (C) consumption, (I) investment, (G) government purchases, (NX) Net Exports
Term
 How does nominal GDP differ from real GDP
Definition
 Nominal - uses current prices to value goods and services   Real - uses constant base year prcies to measure goods and services
Term
 What is the GDP deflator
Definition
 GDP deflator = 100 * (nominal GDP / real GDP)
Term
 What is CPI
Definition
 Measures the consumer's typical cost of living   o   CPI = 100 * (cost of basket in current year) / (cost of basket in base year)
Term
 Why is CPI an imperfect measure of the cost of living?
Definition
 Substitution bias Introduction of new goods Changes in the quality of goods and services CPI overstates inflation
Term
 Comparing CPI to GDP deflator
Definition
 Imported consumer goods (i.e. foreign oil) o   Included in CPI o   Excluded from GDP Deflator   Capital Goods o   Excluded from CPI o   Included in GDP deflator (if produced domestically)   The basket o   CPI uses fixed basket o   GDP Deflator uses basket of currently produced goods & services
Term
 Using price index to compare dollar figures from different times
Definition
 Amount in today’s dollar = (amount in T years) * (Price level today / Price level in T years)
Term
 Real Interest Rate
Definition
 Real interest rate = nominal interest rate - rate of inflation
Term
 Nominal Interest Rate
Definition
 The rate of growth in the dollar value of a deposit or debt   Not corrected for inflation
Term
 Real interest rate
Definition
 The rate of growth in the purchasing power of a deposit or debt   Corrected for inflation
Term
 The value of the consumer price index increased from 140 to 147 during 2006. Nathan opened a bank account at the beginning of 2006, and at the end of 2006 his account balance was \$12,840. Assuming no other transactions during the year. The purchasing power of Nathan’s account increased by 2 percent during the year. How much did Nathan deposit when he opened his account.
Definition
 \$12,000
Term
 Why is productivity the key to a country's standard of living?
Definition
 Productivity determines the economy's ability to produce goods and services
Term
 What is the production function?
Definition
 Y = A F(L,K,H,N)
Term
Definition
 Y/L = A F(1,K/L,H/L,N/L)
Term
 What is the financial system?
Definition
 institutions that match the saving of one person with the investment of another
Term
 What does the financial market consist of?
Definition
 Bond Market Stock Market
Term
 What is the financial market?
Definition
 institutions where savers can directly provide funds to borrowers
Term
 What is a financial intermediary?
Definition
 institutions where savers can indirectly provide funds to borrowers   Ex. Banks, Mutual Funds
Term
 What is private saving?
Definition
 Private Saving = Y – T – C
Term
 What is Public Saving?
Definition
 Public Saving = T – G
Term
 What is a budget surplus?
Definition
 §  When Public Saving (T – G) is positive
Term
 What is a budget deficit?
Definition
 §  A shortfall of tax revenue from government spending   When public saving (T-G) is negative
Term
 What is national saving?
Definition
 Private saving + Public Saving   (Y – T – C) + (T – G)  National saving = (Y – C – G)
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