Econ 101 1st EditionFinal Exam Study Guide1.) How can we assume workers in developing countries are not as productive as US workers?- So the reason our GDP is higher is because their GDP is lower?2.) What is the difference between government transfer payments and tax cuts?o Tax cuts are when the government will have a decrease in their real income and the people whose taxes have been cut will have an increase in their real income. Government transfer payments is a redistribution of income in the market system by the government. Ex: social security, welfare3.) What is this graph an explanation of? Explain.3.) What is the difference between the Aggregate Demand Curve and the expenditure line, and what are the slopes of each? The slope of the expenditure line then is all the stuff being multiplied by Y though correct?Formulas to memorize: - Y=expenditure- Yd= disposable income= Y-T-- T=taxes= Tbar+tY<- income tax- Tbar= poll tax- C=consumption= a+bYd- a= autonomous consumption e.g. food, clothes, etc.- b= MPC=marginal propensity to consume= change in consumption/ change in Y- I= investment= d+eY -- e = marginal propensity to invest= change in investment/ change in Y = are MPS and MPI the same thing??- MPI= 1-MPC- X= exports- IM=imports- SAVINGS=MPIYd-a- Equilibrium= Y= C+I+G+(X-M)- Y=C is the same as Y= a+ bY- Y= a+b(Y(Tbar+tY) + I +G + (X-M)4.) What exactly is inventory and how does it work?o Inventory refers to the amount of product that businesses “keep on the shelves” to sell. When inventory decreases, businesses will respond by producing more and may raise prices in the future. If inventory piles up, businesses will cut production and reduce prices until inventory reaches areasonable level. Equilibrium is reached when businesses no longer feel the need to adjust their levels of inventory.Helpful hint: MPC→ Marginal Propensity to consume “how much you spend out of every dollar you earn” For example, if b=0.8, you will spend 80 cents and save 20 cents for every dollar you receive 5.) What are factors that shift consumption?6.) Regarding the supply side, why does inflation increase with low economic growth?7.) The GDP per capita of many developing countries is so much lower than that for the U.S. becausea) non-market activity is not included in GDP.b) workers in developing countries are less productive than workers in the U.S.c) inflation is higher in developing countries.d) both a and b are correct.8.) In the above figure, at $3,000 billion real GDP,a) spending falls short of output and firms will reduce production.b) inventories are rising.c) spending exceeds total output and inventories will fall.d) aggregate demand equals aggregate supply**** Remember to thoroughly look over algebra that was covered in lecture and
View Full Document