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