Econ 2305: Exam 1
34 Cards in this Set
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If there are constant returns to scale, the production function can be written as..
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Y/L = AF(1, K/L, H/L, N/L)
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In the long run, the higher saving rate
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leads to a higher level of productivity and income, but not to a higher growth in these variables
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What does the level of real GDP measure?
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Total real income.
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A nation's standard of living is determined by...
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Its productivity
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What explains most of the differences across countries in the standard of living?
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Productivity
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The consumer price index is used to....
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monitor changes in the cost of living
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Which goods are supposed to be included in the CPI?
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All goods and services that typical consumers buy
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how are the weights on the various goods and services in the CPI basket determined?
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A survey is conducted to determine how much of each good and service typical consumers purchase.
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GDP
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The market value of all final goods and services produced within a country.
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Real GDP
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Measures the total income of everyone in the economy (adjusting for the level of prices)
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using CPI to calculate inflation rate
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inflation rate Y2= ((CPI in Y2 - CPI in Y1) /CPI in Y1) X 100
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Nominal GDP
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Measures the GDP in the current year dollar value
Includes change in price and production of goods and services
Nom. GDP = Real GDP x GDP deflator / 100
(In all formulas, nominal is always on top)
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The forces that make market economies work are....
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demand and supply
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An economy's scarce resources are allocated by
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prices for resources
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Price takers refer to buyers and sellers in
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a perfectly competitive market
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The sum of all individual demand curves for a product is called
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Market demand
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When quantity demanded has increased at every price, it might be because
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The price of a substitute good has increased
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Demand curve shifts
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income, price of related goods, taste, expectation, number of buyers
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What causes movement along a supply or demand curve?
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Change in price causes a movement along the curve.
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Factors that Shift the Supply Curve
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1- input/resource prices
2- technology
3- taxes
4- expectations of future prices
5- number of sellers
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Real Interest Rate Equation
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nominal interest rate -inflation rate
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CPI equation
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(cost of the basket in the current year/cost of the basket in base year) x 100
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CPI Inflation(equation)
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(CPI year 2-CPI year 1)/(CPI year 1) x 100
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Formula for finding current dollar amount from old salary
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(new cpi/old cpi) x old $ amount = present value of old $ amount
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DP Deflator
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GDP deflator = (Nominal GDP/Real GDP) x 100
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Equation of Inflation rate using the GDP deflator
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Inflation rate in year 2 = (GDP deflator in year 2 -- GDP deflator in year 1) / (GDP deflator in year 1) x 100
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CPI vs GDP Deflator
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Both gauge how quickly prices are rising
GDP --price of goods produced domestically
CPI - price of goods bought by consumer
Imported goods
Included in CPI-Capital goods
Included in GDP Deflator-The Basket
CPI uses fixed basket
GDP deflator uses currently produced goods cost
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Production function with constant returns to scale
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Production function with constant returns to scale
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Production function
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Y = A F(L, K, H, N)
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Inflation rate definition
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The percentage change in the price index from the preceding period.
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Producer price index definition
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A measure of the cost of a basket of goods andservices bought by firms
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Indexation definition
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The automatic correction by law or contract of adollar amount for the effects of inflation
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Nominal interest rate definition
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The interest rate as usually reported without acorrection for the effects of inflation
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Real interest rate definition
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The interest rate corrected for the effects ofinflation
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Econ 2305: Mixed