ECON-1006EL Lecture 10: Micro Relation to Macro Midterm Review
20 Jun 2018
School
Department
Course
Professor
MidTerm Exam - MacroEconomics
Questions:
1-10; Chapter 19
11-14; Chapter 20
15-22; Chapter 21
23-30; Chapter 22
31-38; Chapter 23
39-50; Chapter 24
Chapter 19
1. Potential or full employment output is?
When everyone who wants to work is working, allocation is correct. Output is therefore higher
when individuals are working where they want to be — increasing GDP.
2. What is macro economics all about?
3. What is Marco economics all about?
Macroeconomics studies the behaviour and performance of the economy as a whole.
Concerned with behaviours of economic aggregates and averages such as:
•total output
•total investment
•total exports
•the price level
•how they may be influenced by government policy.
4. When is a worker unemployed?
To be considered unemployed you need to register as actively looking for jobs. Unemployment
rate is an approximation.
5. Define 2 output gaps
Inflationary and deflationary gaps
Inflationary gap: Government reduces demand, lowers taxes, increases expenditures.
Deflationary gap: stimulate aggregate demand (increase government expenditure & fiscal
policy)
6. Unemployment rate calculations?
This is an approximation: Number of ppl unemployed
Number of ppl in labour force (# of ppl employed + number of ppl
unemployed or looking for work)
Multiplied by 100
7. Nominal income
The part of an individuals salary that is produced to them in cash, regardless of inflation. (i.e. if
nominal income rises 12% but inflation is 8%, your real income only rose 4%)
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8. Whats national income measure?
Total count of money earned within a country
9. Whats the real rate of interest?
Nominal -inflation
10. How do you read the exchange rate?
How many domestic dollars it costs to buy 1 forgiven dollar.
Chapter 20
11. Why is GDP an inaccurate measure of quality of life
Although the GDP may rise, this does not mean that GDP per person will also rise. GDP is
influenced by more individuals being employed. If the existing labour force becomes more
productive, average real incomes will rise.
12. What is value added?
The value of a firms output minus the value of the inputs that it purchases from other firms. OR
= Payments owed to the firms factors of production — Does not include wages.
All costs of other inputs that are Brough from other firms.
13. Real national income? how do you calculate this?
Real national income: National income measured in constant (base-period) dollars. It changes
only when a change in either physical quantities or the price on which its based.
Calculate: Real Income(RI): Nominal Income (NI)
CPI (as a decimal or divide by 100)
14. Calculate value added — given $ of input and output.
Formula: Value added = Sales revenue — Cost of intermediate goods.
Intermediate goods; all outputs that are used by inputs by other producers in a further stage of
production.
15. What happens to Aggregate demand when actual aggregate demand is different than
desired aggregate demand?
Desired aggregate demand: (AE) the sum of desired or planned spending on domestic output
by households, firms, government, and foreigners.
If people are wanting to buy more product than is being produced, the demand for the product
will become less when it is not available for purchase.
16. Multiplier, and its affect on national income?
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The higher the multiplier the less average Real income. The multiplier is made up of MPS &
MPC. Thus, higher the MPC lower the MPS and real income decreases.
17. Marginal propensity to consume?490,519
MPC tells us how much of one additional dollar of income gets spent on consumption.
18. Calculate the MPC
The change in desired consumption divided by he change in disposable income that brought it
about.
Formula: MPC = DeltaC
DeltaYD
In simple examples; the MPC is constant and equal to 0.8.
19. What is the consumption function and how do you calculate it?
The relationship between desired consumption expenditure and all the variables that determine
it. In the simplest case, the relationship between desired consumption expenditure and
disposable income.
Key factors:
•Disposable income
•wealth
•interest rates
•expectations about the future.
Calculate: C = Desired consumption + desired consumption rise(disposable income)
When the consumption function crosses the 45 degree line it is called the “break-even level of
income
20. Given the MPC what is the multiplier?
Z(multiplier) = 1
1-MPC
21. What is the MPC?
The MPC is the slope of the function
Determined by: MPC = DeltaC
DeltaYD
22. Given the multiplier — government spending effects?
The multiplier is the change in equilibrium national income divided by the change in autonomous
expenditure that brought it about. In the simple macro model the multiplier is greater than 1.
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Document Summary
When everyone who wants to work is working, allocation is correct. Macroeconomics studies the behaviour and performance of the economy as a whole. To be considered unemployed you need to register as actively looking for jobs. Unemployment rate is an approximation: de ne 2 output gaps. In ationary gap: government reduces demand, lowers taxes, increases expenditures. This is an approximation: number of ppl unemployed. Number of ppl in labour force (# of ppl employed + number of ppl unemployed or looking for work) How many domestic dollars it costs to buy 1 forgiven dollar. Chapter 20: why is gdp an inaccurate measure of quality of life. Although the gdp may rise, this does not mean that gdp per person will also rise. Gdp is in uenced by more individuals being employed. The value of a rms output minus the value of the inputs that it purchases from other rms.
