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A variable that moves cyclically in the same direction as GDP is
Procyclical
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A variable that moves in the opposite direction as GDP is
countercyclical
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A variable that has little relation to real GDP is called
Acyclical
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What are aggregate-consistency conditions
- Conditions that have to hold for the analysis to be consistent.
- I.e. amount loaned on the credit market must equal the total borrowed. Total of goods sold by suppliers must equal the total amount bought by demanders.
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Define market clearing approach.
Clearing means that the price level and the interest rate adjust simultaneously so that the aggregate demand for goods equals the aggregate supply, and the aggregate of desired lending equals the aggregate of desired borrowing.
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What is one of the main assumptions of the Keynesian model
That some prices, usually of labor services or commodities, are sticky and that some rationing of quantities bought or sold therefore comes into play.
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What is chain weighted GDP?
chain-weighting starts by computing the average price of each good for two adjacent years. The quantities of each good produced are multiplied by these average prices and then summed for each year.
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Depreciation
amount of existing capital that wears out during any given time period.
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Net Investment
net change in the stock of capital goods.
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Normal goods
Goods that rise in consumption with an increase in wealth.
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Inferior goods
Goods which people desire less of as their income rises.
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Double coincidence of wants
In a barter exchange economy, you have to find someone who exactly wants the goods that you have and you want exactly the goods that they have.
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TFU: effecient allocations require that private and government investments have the same marginal productivity.
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What is the Phillips curve?
It is the historical inverse relationship between inflation and unemployment in the economy.
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TFU: The phillips cuve in developing countries will generally be very different from that in the EU and/or the US.
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TFU: The rising productivity of both India and China should increase the demand for US, Japanese, and Europe's products since all of these countries and regions are relatively specialized in the production of higher valued products.
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Disposable income
Income left over after paying taxes.
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How do you calculate the GDP deflator?
(Nominal GDP/Real GDP) * 100
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How do you calculate the real GDP from nominal and a price deflator?
Real= (Nominal/GDP deflator) * 100
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IS/LM model
The analytical took used in Keynesisan theory to study the simultaneous determination of aggregate output and the interest rate.
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Show consumption between two periods
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What is M1
Currency plus checkable deposits
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Transaction costs
Expenses of carrying out trades, as well as the costs of making financial decisions.
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An increase in the interest rate does what to the demand for money?
Reduces the demand for money
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An increase in the real transaction costs, does what to the demand for money?
It raises the real demand for money.
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What is the real-balance effect?
An increase in wealth from a decline in the price level.
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What is Walras Law?
Walras' Law implies that the sum of excess demands across all markets must equal zero, whether or not the economy is in a general equilibrium.This implies that if positive excess demand exists in one market, negative excess demand must exist in some other market. Thus, if all markets but one are in equilibrium, then that last market must also be in equilibrium.
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Derive Walras law of markets by using the households budget constraint.
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What is net investment?
Change in the capital stock over two periods (gross investment) less the amount of depreciation.
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Derive the investment and capital model with the steady state equilibrium. Show the effect of an increase in the savings rate. Show the effect of a decrease in the depreciation rate.
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What is meant by convergence?
Initially poorer economies with low levels of Capital and output tend to have higher average growth rates than those economies that started with higher amounts of starting values and thus tend to catch up to the richer economies approaching the steady state.
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What is endogenous growth?
long run economic growth that is explained by the interactions within a model.
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Define crowding out
A decrease in private consumption and investment that results from an increase in government consumption.
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What is the Laffer curve?
A relationship between tax rates and tax reciepts.
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