Macroeconomics for E&BE - Final Exam Sample

Old steady state = The initial level of capital per effective worker before the saving rate changes New steady state = The adjusted level of capital per effective worker after the saving rate falls Saving rate = The proportion of income saved and invested in capital Golden rule saving rate = The saving rate that maximizes consumption per effective worker

Immediately after saving rate decrease = Consumption per effective worker rises due to increased consumption share After reaching new steady state = Consumption per effective worker is higher than before the decrease During transition = Consumption per effective worker declines from its immediate rise In the old steady state = Lower consumption per effective worker compared to the new steady state

Capital stock shrinks = Result of a saving rate falling below necessary investment levels Saving curve shifts down = Occurs when the saving rate decreases Consumption rises immediately = Effect of reducing the saving rate before reaching a new steady state Investment vs. required investment = Determines the adjustment to capital stock over time

<p>Output per worker growth rate = Grows at the rate of technological progress, 𝑔* Capital per worker growth rate = Grows at the same rate as output per worker Population growth = Does not directly affect output per worker growth Technological progress = Is the driving factor for growth in output and capital per worker</p> Signup and view all the answers

<p>Labour force = Total number of people employed and actively seeking employment Natural rate of unemployment = The level of unemployment where inflation is stable Efficiency wage theory = The idea that higher wages can lead to increased productivity Phillips curve = Demonstrates the inverse relationship between unemployment and inflation</p> Signup and view all the answers

<p>Cyclical unemployment = Unemployment caused by economic downturns Structural unemployment = Unemployment occurring due to industry changes Frictional unemployment = Temporary unemployment during transitions between jobs Seasonal unemployment = Unemployment related to seasonal work fluctuations</p> Signup and view all the answers

<p>Wage setting relation = $W = PeF(u,z)$ Inflation deviation = $π_t - π_{t-1}$ Unemployment rate equation = $u = (m + z) - αut$ Separation rate = Rate at which employees leave jobs</p> Signup and view all the answers

<p>Minimum wage = Affects wage setting Unemployment benefits = Influences supply of labor Productivity = Can decrease if wages are too low Turnover rate = Related to employee retention</p> Signup and view all the answers

<p>High unemployment rate = Potential for wage reduction Natural unemployment rate = Signals a stable economy Increase in separation rate = Could indicate job market volatility Low frictional unemployment = Indicates efficiency in job matching</p> Signup and view all the answers

<p>Structural unemployment = Factory closures leading to job loss Cyclical unemployment = Recession causing layoffs Seasonal unemployment = Agricultural jobs that depend on harvest dates Frictional unemployment = Recent graduates searching for jobs</p> Signup and view all the answers

<p>Phillips Curve = Relates inflation to unemployment Efficiency Wage Theory = Higher wages leading to improved worker performance Keynesian theory = Focuses on total spending in the economy Supply-Side Economics = Encourages production through lower taxes</p> Signup and view all the answers

<p>Pe = Expected price level u = Unemployment rate z = Other factors affecting wages W = Wage level</p> Signup and view all the answers

<p>Saving rate = Fraction of income saved by households Depreciation = Rate at which capital loses value Population growth = Increase in the number of people in an economy Technological progress = Advancement in technology leading to increased efficiency</p> Signup and view all the answers

<p>Rate of depreciation = 5% per year Population growth rate = 2% per year Growth rate of technology = 3% per year Saving rate = 40%</p> Signup and view all the answers

<p>Increase in output per effective worker = Increase in the rate of technological progress Lower rate of growth of output per worker = Lower rate of saving Required investment fraction x = 0.10 Objective of monetary policy in the euro area = Price stability</p> Signup and view all the answers

<p>Forward guidance = Influence expectations about long term interest rates Increasing interest rates = Control inflation Decreasing interest rates = Stimulate economic growth Open market operations = Manage liquidity in the economy</p> Signup and view all the answers

<p>s = Saving rate δ = Depreciation rate gA = Rate of technological progress gN = Population growth rate</p> Signup and view all the answers

<p>Consumption = C = 500 + 0.5(Y - T) Investment = I = 200 + 0.1Y - 5000r Government spending = G = 400 Taxes = T = 400</p> Signup and view all the answers

<p>Influence on term premium = Effect of forward guidance Risk premium changes = Effect of market expectations Interest rate adjustments = Response to inflation rates R&amp;D spending = Depends on new ideas and benefits from results</p> Signup and view all the answers

<p>K* = 512 Y* = 64 C* = 3.2 I* = 12.8</p> Signup and view all the answers

<p>Y = Output K = Capital A = Technological level N = Labor force</p> Signup and view all the answers

<p>Full employment = Economic condition where all individuals willing to work are employed Price stability = Absence of inflation or deflation Financial stability = Condition of the financial system where institutions operate effectively Endogenous growth = Economic growth driven by factors within the economy</p> Signup and view all the answers

<p>Increase in oil price = Higher natural rate of unemployment Lower natural level of output = Higher natural interest rate Higher saving rate = Increased capital accumulation Higher depreciation rate = Lower steady-state capital</p> Signup and view all the answers

<p>3% inflation rate = Actual inflation rate 5% nominal interest rate = Determining cost of borrowing 20% investment response = Reaction to interest rate adjustments 0.5 marginal propensity to consume = How much consumption increases as income increases</p> Signup and view all the answers

<p>Y = K^(1/2)(AN)^(1/2) = Output in terms of capital and effective workers sY = δK = Steady-state condition s <em>+ = (δ + gA + gN) K</em> = Savings in effective worker terms K* = 64 = Steady-state capital per effective worker</p> Signup and view all the answers

<p>Unemployment rate above natural rate = Output is below potential Unemployment rate at natural rate = Inflation is unpredictable Unemployment rate below natural rate = Output is above potential Natural rate of unemployment = Stable inflation</p> Signup and view all the answers

<p>s <em>+ = 0.2</em>K* = Consumption as a fraction of output s <em>+ = 0.8</em>Y* = Savings in steady-state terms 0.2<em>K</em> = Investment required at steady state 0.8<em>Y</em> = Total savings in the economy</p> Signup and view all the answers

<p>Increase in taxes = IS curve shifts to the left Running fiscal deficit = Output remains unchanged Decrease in government spending = Inflation rises Fiscal consolidation = All of the above</p> Signup and view all the answers

<p>Golden-rule saving rate = Optimal saving rate for maximizing consumption Natural interest rate = Rate that balances output and employment Per effective worker terms = Production function adjusted for population and technological progress Steady-state = Condition where capital and output remain constant over time</p> Signup and view all the answers

<p>K = Units of capital Y = Units of output C = Units of consumption I = Units of investment</p> Signup and view all the answers

<p>Decrease the policy rate = Restore output to potential level Increase the policy rate = Reduce inflation Decrease money supply = Increase output Maintain current policy rate = No change in output</p> Signup and view all the answers

<p>Nominal GDP growth rate = Does not account for inflation Real GDP growth rate = Reflects true output growth Nominal GDP per capita growth = Measures average income Real GDP per capita growth = Most accurate indicator of living standards</p> Signup and view all the answers

<p>Increase capital by 2% = Output increases by 2% Increase labor by 2% = Output increases by 2% Increase both inputs by 2% = Output increases by 2% Constant returns to scale = Output remains the same</p> Signup and view all the answers

<p>Investment per worker exceeds depreciation = Unsustainable growth Output per worker is constant = No economic expansion Consumption per worker is maximized = Leads to higher living standards Economy is dynamically efficient = Optimal resource allocation</p> Signup and view all the answers

<p>Higher saving rate in economy A = Higher consumption per worker in economy B Lower saving rate in economy B = Lower consumption per worker in economy A Equal saving rates in both economies = Equal consumption per worker Uncertain steady-state consumption comparison = Outcomes depend on other factors</p> Signup and view all the answers

<p>Higher saving rate in A = Higher growth rate of output per worker in A Equal characteristics in A and B = Equal growth rates Lower saving rate in B = Higher growth rate of output in A Uncertain growth rate comparison = Depends on technology or policy</p> Signup and view all the answers

<p>LM curve = Relationship between interest rates and output in the money market Phillips curve = Relationship between inflation and unemployment Natural level of output = Level of output where the economy is at full employment IS curve = Relationship between interest rates and output in the goods market</p> Signup and view all the answers

<p>Y* = 2000 Y_N = 1800 Expected inflation = 0.01 Short-run Y = 2500</p> Signup and view all the answers

<p>Increase in interest rates = Reduces investment Increase in government spending = Stimulates aggregate demand Increase in oil prices = Increases production costs Adaptive expectations = Inflation based on past rates</p> Signup and view all the answers

<p>Short-run equilibrium = To the right of the medium-run equilibrium Medium-run equilibrium = Where inflation equals expected inflation Increase in r = Leads to lower output Adjustment of Y = Returns to natural level</p> Signup and view all the answers

<p>Government spending increase = Does not change natural output Tax increase = Does not change natural output Short-run increase in Y = Temporary change due to stimuli Raising the interest rate = Cool down inflation expectations</p> Signup and view all the answers

<p>Real interest rate (r) = 0.02 Expected inflation rate = 0.01 Inflation differential in Phillips curve = 0.03 Natural level of output when Y = 2500 = 2300</p> Signup and view all the answers

<p>Short-run equilibrium = Output fluctuates due to demand shocks Medium-run equilibrium = Output stabilizes at natural level Inflation target = Central bank's goal to stabilize prices Investment behavior = Response to changes in interest rates</p> Signup and view all the answers

<p>Increasing government spending and taxes equally = False Increase in oil prices raising the natural interest rate = False Adaptive expectations influencing inflation rates = True Output reverting to natural level in medium-run = True</p> Signup and view all the answers