# ECON CH1-3

Home > Preview

The flashcards below were created by user yhliuaa on FreezingBlue Flashcards.

1. demand-GDP
inventory investment
2. assumption in short run
• price is fixed
• ie. firms are willing to supply any amount of goods
3. Consumption is a function of...
disposable income
4. Why are G&T exogenous?
Governments do not behave with the same regularity as consumers or firms.

Macroeconomists must think about the implications of alternative spending and tax decisions of the government.
5. Difference btw GDP and total demand for goods
Inventory investment; because it is not consumed it is not part of the demand
6. *Components in GDP, eg. C and IM may offset each other and result in no net change in GDP
7. Autonomous spending is positive when...negative when...
• Government is running a balanced budget or having budget deficit;
• very large budget surplus
8. Formula of Z
Z=(autonomous spending)+c1Y
9. *Any change in autonomous spending will change output by more than one for one
10. The multiplier effect/amplification effect comes from
• demand Z↑
• production Y↑
• income↑
• consumption↑
• hence Y↑>initial shift in demand
11. Y=income/production;
Z=...
• Demand
• expenditure
• spending
12. Interpreting the multiplier
The sum of all successive increase in production
13. How Long Does It Take for Output to Adjust?
assume production responds to demand instantaneously!

assume consumption responds to changes in disposable income instantaneously.
14. Deriving IS relationships
• no govt
• Y=Z
• Y=C+Saving
• Z=C+I
• I=Saving

• verify I=saving
• with govt
• Y=C+I+G
• I=Y-C-G
• private saving=Y-T-C
• public saving=T-G
• national saving=Y-C-G
• hence I=national saving
15. private saving equation
S=-c0+MPS(Y-T)
16. Equilibrium IS equation
I=-c0+(1-c1)(Y-T)+(T-G)(ie the public saving)
17. Explain how diseqm leads to inventory investment
Originally the firm produces 100 units and it is the equilibrium output, now it decides to produce 200 units, according to Z=c1Y+autonomous spending, change in demand equals c1(0.5)*100=50, total demand=150, 50 units becomes inventory investment
18. what is the paradox of saving
as people attempt to save more, the result is both a decline in output and unchanged saving IN THE SHORT RUN
19. mechanism behind paradox of saving-I=S perspective
• s=-c0+MPS(disposable income)
• when consumer wants to save more, c0 ↓
• 1)-c0 ↑, s ↑
• 2)consumption ↓, Z ↓, by eqm, Y↓, S↓
20. The government is not omnipotent because
•  Changing government spending or taxes is not always easy .
•  The responses of consumption, investment, imports, etc, are hard to assess with much certainty.
•  Anticipations are likely to matter .
•  Achieving a given level of output can come with unpleasant side effects.
•  Budget deficits and public debt may have adverse implications in the long run.
21. mechanism behind paradox of saving-Y=Z perspective
• S=Y-T-C
• Y=C+I+G(Y=Z)
• hence S=I+G-T
• consumer's decision to save more cannot affect I, G, T
• S does not change
22. how to calculate GDP deflator
nominal GDP/real GDP(specific base year)
23. calculate inflation rate
• Pt: GDP deflator of t
• P(t-1): GDP deflator of t-1
• inflation rate=Pt-Pt-1/Pt-1
24. under what condition will chained type GDP and fixed based year GDP give different numbers
• produce more than one good
• otherwise due to the different weights of goods, the estimate is not accurate
25. problems with fixed based year
• overest. growth of years after base year and underest growth of years before base year
• frequent revisions
26. how to calculate real GDP for 2001 in chained dollars
• matrix: base years dollars as column; years'productions as row
• use column results: production growth rate for both years
• avg production growth rate
• 2000 index:1; 2001 index=1+avg rate
• 2001 GDP in chained=nominal GDP in 2000*2001 index
27. how to calculate eqm output and demand
• Y, Yd, C, multiplier, autonomous spending
• output: mutliplier
• demand: C+I+G
28. why is tax called automatic stabilizer when T=t0+t1Y
• multiplier=(1-c1+c1t1)
• autonomous spending↑, Y↑, T↑, lessen the ↑in Y
• economy responds less to changes in autonomous spending than in the case where T is independent of Y
29. suppose t depends on Y, if autonomous spending ↓, why is balanced budget requirement destabilizing?
• Y↓ and T↓
• to balance budget, ↓G
• Y further ↓
30. suppose I=b0+b1Y, if b0 ↑, what is the ↑ in investment?
(b0↑)+ b1*Y↑
31. if investment is exogenous(given), saving is
unchanged

### Card Set Information

 Author: yhliuaa ID: 234663 Filename: ECON CH1-3 Updated: 2013-10-17 17:04:34 Tags: ECON CH1 Folders: Description: ECON CH1-3 Show Answers:

What would you like to do?

Home > Flashcards > Print Preview