question
Price Levels
answer
-CPI and GDP deflator
-Tells us about inflation and deflation
-Tells us about inflation and deflation
question
Gross Domestic Product (GDP)
answer
-Total income of everyone in economy
-Total expenditure on economy's output of goods and services
-Market value of all final goods and services produced within an economy in a given period of time
-Value of final good
-Total expenditure on economy's output of goods and services
-Market value of all final goods and services produced within an economy in a given period of time
-Value of final good
question
Expenditure=Income
answer
-Because every dollar a buyer spends becomes income to the seller
question
"Value" at Market Price
answer
-Prices reflect relative social valuations (how much people are willing to pay)
-i.e. more expensive product=we value it more
-i.e. more expensive product=we value it more
question
Not included in GDP
answer
-Drugs (underground economy)
-Value of time in education
-Home production
-Value of time in education
-Home production
question
Produced Goods
answer
-Only measure of income is what we produced
-Used goods (exchanged and trade) are not included in GDP
-Used goods (exchanged and trade) are not included in GDP
question
Gross National Product
answer
-Another measure of income
-Value of all goods/services produced by "domestically owned"factors of production
-Value of all goods/services produced by "domestically owned"factors of production
question
Measuring GNP:
answer
-GNP=GDP + net factor income
-GDP -(overseas income- income in home country of foreign factors of production)
-GDP -(overseas income- income in home country of foreign factors of production)
question
Components of GDP:
answer
Consumption, investment, government purchases, and net exports=Output
question
Total income
answer
Wages+profits= W+ pi
question
Nominal GDP
answer
-Measures the value of goods and services using current prices
-Not good to use because of the changes of prices
-Not good to use because of the changes of prices
question
Real GDP
answer
-Measures the value of goods and services using constant prices
-As real GDP increases, consumption increases, prices increase, and inflation goes up
-As real GDP increases, consumption increases, prices increase, and inflation goes up
question
GDP Deflator
answer
-Amount needed to deflate nominal GDP to get real GDP
-Nominal GDP vs Real GDP
-Imported goods not included
-Assigns changing weights that allows basket of goods to change over time
-Nominal GDP vs Real GDP
-Imported goods not included
-Assigns changing weights that allows basket of goods to change over time
question
Consumer Price Index
answer
-Most commonly used measure of level of prices
-Assigns fixed weights to prices of different goods
-Increase in purchasing power does not reflect a lower CPI
-Assigns fixed weights to prices of different goods
-Increase in purchasing power does not reflect a lower CPI
question
Producer Price Index
answer
-Measures price of a typical basket of goods bought by firms rather than consumers
question
Substitution bias
answer
-Does not reflect ability to substitute towards goods where prices have fallen
question
Labor Force
answer
Sum of employed and unemployed
question
Unemployment rate:
answer
# of unemployed/labor
question
Factors of Production
answer
-Inputs used to produce goods and services
-Use capital (k) and labor (l)
-No resources wasted
-Fixed capital and labor
-Use capital (k) and labor (l)
-No resources wasted
-Fixed capital and labor
question
Production Function
answer
-Shows how factors of production determine the amount of output produced
-Y =F(K,L)
-Output is the amount of capital and amount of labor
-Y =F(K,L)
-Output is the amount of capital and amount of labor
question
Constant Returns to Scale
answer
-Occurs when an increase of equal percentage in all factors of production causes an increase in output of the same percentage
-increase capital and labor by 10&-> increase output by 10%
-increase capital and labor by 10&-> increase output by 10%
question
Output
answer
-Determined by fixed factor of supplies and fixed state of technology
Y=F(Kbar, Lbar)=Ybar
Y=F(Kbar, Lbar)=Ybar
question
Factor Prices:
answer
-Amount paid to factors of production
-Price is determined by supply and demand for that factor
-Price is determined by supply and demand for that factor
question
Competetive Firm
answer
-Small
-Little influence on market prices
-Takes prices as given
-Y=F(k,l)
-Little influence on market prices
-Takes prices as given
-Y=F(k,l)
question
Profit
answer
Revenue-labor costs-capital costs=py-wl-rk
question
Marginal Product of Labor
answer
-Extra amount of output a firm gets from one extra unit of labor
-Wage/profit=real wage=purhcasing power of firms
-Firm hires more people until MPL=real wage
-Change in Output/Change in Labor
-Wage/profit=real wage=purhcasing power of firms
-Firm hires more people until MPL=real wage
-Change in Output/Change in Labor
question
Diminishing Marginal Product
answer
-Holding the amount of capital, the the marginal product of labor decrease as the amount of labor increases
-with each additional unit of labor, the MPL is smaller
-More labor is not producing more output=diminishing marginal product=flatter line in graph
-with each additional unit of labor, the MPL is smaller
-More labor is not producing more output=diminishing marginal product=flatter line in graph
question
Diminishing Returns:
answer
-MPL decrease as labor decreases (holding capital constant_
MPK decreases as capital decreases (holding labor constant)
-Firm keeps hiring labor until hiring cost is lower than benefit it brings to them
MPK decreases as capital decreases (holding labor constant)
-Firm keeps hiring labor until hiring cost is lower than benefit it brings to them
question
Marginal Product of Capital
answer
-Amount of extra output in firm from an extra unit of capital
-Firm continues to rent more capital unitl MPK falls to equal real rental price
-Change in Output/Change in Capital
-Firm continues to rent more capital unitl MPK falls to equal real rental price
-Change in Output/Change in Capital
question
Real rental price of capital
answer
-Rental price measured in goods instead of dollars
question
Total wage bill
answer
MPLxL
question
Accounting profit
answer
Economic profit +(MPK xK)
question
Economic profit
answer
==Profit in national income must return to capital
question
Closed economy
answer
-No trade, NX =0
question
Disposable income
answer
Income after payment of all taxes
question
Marginal Propensity to Consume
answer
-Amount by which consumption changes when disposable income increases by $1
-MPC is between o & 1
-If MPC is .7 cents, then you saved .3 cents
-MPC is between o & 1
-If MPC is .7 cents, then you saved .3 cents
question
Investment
answer
-Quantity of investment goods demanded depend on interest rates
-If investing would make more than the yield figure-borrow; but if not, do not borrow
-higher interest rate=demand goes down=greater cost
-long term interest rates are higher than short term
-Investment increases because of technological advances
-If investing would make more than the yield figure-borrow; but if not, do not borrow
-higher interest rate=demand goes down=greater cost
-long term interest rates are higher than short term
-Investment increases because of technological advances
question
Real Wage
answer
-MPL=Wage/Profit
-Adjusts to equate labor demand with supply
-Adjusts to equate labor demand with supply
question
Cobb Douglas Function
answer
-Y = AK ^a x L^(1-a)
-Same amount of K and L
-MPK= aAK^(a-1) x L^(1-a)
-IF 30% of share of income goes to capital, the remaining goes to labor
-Same amount of K and L
-MPK= aAK^(a-1) x L^(1-a)
-IF 30% of share of income goes to capital, the remaining goes to labor
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
