ECON-1007EL Study Guide - Final Guide: Output Gap, Potential Output, Mattress
22 May 2018
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MACROECONOMICS EXAM
Q1: What is National Income?
A1: National income is the total amount of money earned within a country.
Q2: What are intermediate products?
A2: Intermediate products are all outputs that are used as inputs by other producers in a further
stage of production.
Q3: How would you interpret the points on the 45-degree line diagram?
A3:
Q4: How does government expenditure impact AE function?
A4:
Q5: Given ADAS curve, when will government expenditure have impact?
A5:
Q6: What is an output gap?
A6: Output gap is Actual output minus potential output, Y-Y*. There are two types of output
gaps, recessionary gaps and inflationary gaps. Inflationary gap is a situation in which actual
output exceeds potential output, Y>Y*. Recessionary gap is a situation in which actual output is
less than potential output, Y<Y*.
Q7: Over the long run, what changes real GDP?
A7:
Q8: What do changes in price do to the value of money?
A8:
Q9: What are the three functions of money?
A9:
Q10: What is Gresham’s Law?
A10: Gresham’s Law is the theory that “bad”, or debased, money drives “good”, or undebased,
money out of circulation.
Q11&12: You find a 100-dollar bill in your grandmother’s mattress, given the reserved ratios per
bank (target reserve ratios) is X%, how much money can be created?
A11&12:
Q13&14: A single bank gets the money; how much money is created?
A13&14: Money is not created, it is only deposited.
Q15&16: What determine bond prices?
A15&16:
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Document Summary
A1: national income is the total amount of money earned within a country. A2: intermediate products are all outputs that are used as inputs by other producers in a further stage of production. A6: output gap is actual output minus potential output, y-y*. There are two types of output gaps, recessionary gaps and inflationary gaps. Inflationary gap is a situation in which actual output exceeds potential output, y>y*. Recessionary gap is a situation in which actual output is less than potential output, y
