Macroeconomics for E&BE - Final Exam Sample

The number of people who are not employed and are not actively seeking work, either due to discouragement or other reasons.

The rate at which unemployed individuals find a job.

A theory that suggests firms may pay higher wages to increase worker productivity and reduce turnover.

The relationship between wages and unemployment, where wages are determined by factors such as worker bargaining power, unemployment benefits, and minimum wage.

The level of unemployment at which inflation is stable.

A model that describes the relationship between inflation and unemployment.

The rate at which workers leave their jobs, contributing to unemployment.

The average amount of time an unemployed person spends before finding a new job.

The relationship between the interest rate and the level of output that keeps the money market in equilibrium. It shows the combinations of interest rates and output levels where the demand for money equals the supply of money.

The level of output where the economy is in long-run equilibrium, with no tendency for inflation to rise or fall.

The point where the IS curve, LM curve, and Phillips curve intersect. This represents the short-run equilibrium of the economy, where goods, money, and the inflation rate are all in balance.

The point where inflation is stable and the economy is operating at its natural level of output. This represents the long-run equilibrium of the economy.

The relationship between the interest rate and the planned spending in the economy. It shows the combinations of interest rates and output levels where the demand for goods and services equals the supply of goods and services.

Government spending and taxes do not influence the natural level of output in the long run. This is because the natural level is determined by factors like technology, labor force, and productivity, which are not affected by fiscal policy.

A permanent increase in oil prices will shift the IS curve to the left and the Phillips curve up. This will increase the natural rate of interest rate.

When unemployment exceeds the natural rate, it indicates that the actual output is lower than the potential output. The economy isn’t operating at its full capacity.

Decreasing a fiscal deficit by increasing taxes leads to a leftward shift of the IS curve. This contractionary fiscal policy reduces aggregate demand, leading to lower output and potentially lower inflation in the short run.

To counteract the negative effects of fiscal consolidation and restore output to its potential, the central bank should lower policy rates (interest rates). This expansionary monetary policy encourages investment and spending, stimulating the economy.

The growth rate of real GDP per capita is the most widely used measure of living standards. It accounts for both economic growth and population growth, indicating the average income per person.

In a production function with constant returns to scale, if inputs like capital and labor increase by a certain percentage, the output will increase by the same percentage. This means doubling both inputs doubles the output.

A steady state in economics refers to a situation where key economic variables like output per worker remain constant over time. This occurs when investment per worker exactly offsets depreciation per worker, leading to no net change in capital stock.

A higher saving rate (s) in an economy doesn't automatically guarantee higher steady-state consumption per worker. The effect on consumption depends on factors like the rate of technological progress and the capital depreciation rate.

In the context of steady state, a higher saving rate doesn't necessarily lead to a higher growth rate of output in the long run. Growth rates are primarily driven by technological progress and population growth, not just savings.

Technological progress is an example of a factor that can cause an increase in output per effective worker. It can be in the form of improved techniques, new equipment, or innovations that enhance productivity.

In the context of the Solow growth model, the required investment is a fraction of the stock of capital per effective worker that is determined by factors including the depreciation rate, population growth rate, and technological progress.

In the AK model, a lower saving rate can result in a lower rate of growth of output per worker in the long run. This is because a lower saving rate means less capital is available for investment, which leads to lower productivity growth.

Research and Development (R&D) spending is influenced by factors such as how spending translates into new ideas and products, and the extent to which firms benefit from their own R&D efforts.

The primary objective of monetary policy in the Euro Area is to maintain price stability, which involves controlling inflation rates to keep them within a target range.

Forward guidance in monetary policy is a communication strategy used by central banks to manage expectations about future interest rates. It aims to influence expectations about long-term interest rates, helping to guide market participants and ensure smooth economic transitions.

The IS curve represents the equilibrium in the goods market, where the quantity of goods supplied equals the quantity demanded. In this case, the IS curve is the relationship between output (Y) and the real interest rate (r) that satisfies the condition Y = C+I+G. In the case of this equation, the IS curve is represented by the formula Y= 2250-12500r.

The real interest rate is the nominal interest rate adjusted for inflation. This means it describes the true cost of borrowing money after accounting for the rate at which prices are rising.

The rate at which the capital stock per effective worker changes, converging toward a new steady state.

The point on the Solow model graph at which investment equals depreciation, implying a stable capital stock.

The saving rate that maximizes consumption per effective worker in the long run.

When saving rate decreases, the level of consumption per effective worker increases immediately as a larger proportion of income is consumed.

When a new steady state is reached, consumption per effective worker is higher because of the golden rule saving rate.

The consumption per effective worker level falls from its initial high level, but always remains above the old consumption level during the transition to the new steady state.

In the steady state, output per worker and capital per worker grow at the same rate, which is the rate of technological progress.

The steady-state condition in the Solow model represents a long-run equilibrium where the capital per effective worker remains constant. This implies that investment equals depreciation and the economy is neither growing nor shrinking.

The Solow model, in its simplest form, assumes a production function that exhibits diminishing returns to capital. This means that as capital per worker increases, the additional output from each additional unit of capital decreases.

In the Solow model, the steady-state level of capital per effective worker is determined by factors such as saving rate, depreciation rate, population growth rate, and technological progress. These factors influence the balance between investment and depreciation, ultimately deciding the steady-state level of capital.

In the context of the Solow model, an increase in the technological progress rate (g*) leads to a higher steady-state level of output per effective worker. This is because technological progress enhances productivity and allows for greater output with the same amount of capital.

The Solow model suggests that in the long run, the economy will converge to a steady-state level of capital and output per effective worker. This implies that there is a limit to economic growth driven by capital accumulation alone.

In the context of the Solow model, the level of consumption per effective worker is determined by the saving rate and the steady-state level of output per effective worker. A higher saving rate will lead to lower consumption in the short run, but potentially higher consumption in the long run due to increased capital accumulation.

The required investment in the Solow model is the amount of investment needed to maintain the steady-state level of capital per effective worker. It represents the minimum investment required to offset depreciation and population growth.