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

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Cards

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
Constant Return to Scale
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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