Definitions
Define output gap
The difference between the actual level of GDP and the productive potential of an economy
In 2018, nominal GDP grew 5.2% and inflation reached 23%. Calculate the growth rate of real GDP.
-17.8%
Name is the three aggregate outputs?
GNP, GDP, and GNI
If there is a change in the savings rate then...
Then it leads to changes in the steady-state consumption per worker
What are the two sources economic growth comes from?
Capital accumulation and technological process
What is the IS curve?
The IS curve shows the combinations of interest rates and levels of output deriving from which investment equals savings
In a typical month, 20% of the unemployed find new jobs, whereas 1% percent of the employed lose their jobs. Using this information, calculate the natural rate of unemployment.
4.76%
Explain what the multiplier represents in the goods market in the short run
A change in autonomous spending
If there are signals of an inceease of demand mostly in the services sector, as people decide to travel more and go out to restaurants and crowded venues then what happens in the short and medium run?
In the short run there will be a shift to the right of the IS curve implementing a new equilibrium with higher unexpected inflation and a large output gap. In the medium-run monetary policy is implemented to reduce consumption, increasing the policy rate, which rreduces aggregate demand and leads to a new equilibrium at a higher interest rate, and no output gap.
What is the difference between the CPI and GDP deflator?
The difference between the CPI and GDP delator is that the GDP deflator takes into account the price of goods produced in the country, whereas the CPI measures the price of the goods consumed in the country.
What is the expenditure approach?
Yt = Ct + It + Gt + NXt
Using graphs of the IS-MP-PC model, indicate what will be the short-run equilibrium and the medium-run equilibrium: There are signals of an increase of demand mostly in the services sector, as people decide to travel more and go out to restaurants and crowded venues.
In the short run, it shifts to the right of the IS Curve. New equilibrium with higher unexpected inflation and a larger output gap. In the medium run, Monetary policy is implemented to reduce consumption, increasing the policy rate, which reduces aggregate demand and leads to a new equilibrium at a higher interest rate, and no output gap.
Explain how the original Phillips curve differs from the expectations-augmented Phillips curve.
The Original Phillips curve demonstrates the relationship between unemployment rate and inflation. The Augmented Phillips curve demonstrates the relationship between unemployment rate and change in inflation rate.
If the economy will converge to a steady state then...
Both output and capital per worker will grow at the same rate so the capital-output ratio is constant
What determines the level of aggregate output in the medium-run?
In the medium-run changes in output determined by supply: capital stock, level of technology, size of labor force
Define quantitive easing.
Quanitative easing is a monetary policy strategy used by central banks by increasing the supply of money in attempt to reduce interest rates.
Suppose we wish to examine the determinants of the equilibrium real wage and equilibrium level of employment (N). In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis, the wage-setting relation will now be
An upward sloping line
Why is it the case that some countries have high levels of economic growth and other countries don't
Due to the principle of transitiion dynamics, the father below its steady state an economy is in, the fastest the economy will grow.
If there is a "break-even in investment per efficienct units of labor then the...
The amount of investment per efficiency unit of labor necessary to keep the capital stock per efficiency unit of labor from decreasing
Why is the level of saving important?
Because the saving rate determines the level of output per worker in the long-run.