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ECON 3123, Exam 1 Study Guide

by: Reilly Emerson

ECON 3123, Exam 1 Study Guide 3123

Marketplace > Oklahoma State University > 3123 > ECON 3123 Exam 1 Study Guide
Reilly Emerson
OK State
GPA 3.85

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study guide for exam 1 with important terms and some study questions from the notes
Intermediate Macroeconomics
Dr. Jaebom Kim
Study Guide
Intermediate, Macroeconomics
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This 2 page Study Guide was uploaded by Reilly Emerson on Sunday September 25, 2016. The Study Guide belongs to 3123 at Oklahoma State University taught by Dr. Jaebom Kim in Fall 2016. Since its upload, it has received 53 views.


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Date Created: 09/25/16
ECON 3123 Exam 1 Study Guide Terms:  Economics – the study of how people/society manage(s) their scarce resources; goal is to maximize happiness/utility with what we have available  National Income Accounting – the system used to measure GDP and many related statistics  National Income Account Identity – Total output = total income = total expenditure; buyers’ expenditure = sellers’ income (shown in circular flow of economic activity diagram)  Inputs – resources used for production (resources aren’t always inputs)  Endogenous variable – variable that is determined by the model (change causes a move along the curve)  Exogenous variable – variable given from outside the model (change causes the curve to shift)  Measuring GDP o Product Method – value added summed across industries o Income Method – total factor payments (household income) Y = wL + rK o Expenditure Method – Y = C + I + G + NX **2/3 of GDP is consumption**  Consumer Price Index (CPI) – a measure of price level and a good indicator of cost of living; measure of the overall cost of goods and services bought by a typical consumer o Problems with CPI – why it will always overstate the inflation rate (usually by about 1% per year)  Substitution bias – when the price of a good goes up, consumers may buy its substitute; however, that good will not be replaced in the fixed market basket  Introduction of new goods and services – market basket is fixed in the base year, so goods that weren’t available at that time aren’t included  Unmeasured quality changes – linked to intro. of new goods and services  Producer Price Index (PPI) – measure of the cost of a basket of goods and services bought by firms  Crowding out – fall in private investment due to government borrowing  Twin deficit – government budget deficit and trade deficit Study Questions: Q: What are the 6 key variables of macroeconomics? A: Real GDP – adjusted for inflation Inflation – increase in overall price level Unemployment rate – defines business cycle, labor market and short run economy Interest rate – cost of borrowing, opportunity cost of holding money, rate of return Stock Market Exchange rate – real and nominal, international trade Q: What is the primary goal of macroeconomics? A: to explain how economic changes affect many households, firms and markets at the same time Q: Who measures GDP and reports CPI? A: Bureau of Labor Statistics Q: What are the assumptions and implications of the theory of production in the long run? A: factors of production are in fixed supply and are fully employed  output will also be fixed Q: What condition determines the amount of labor a firm should hire in order to maximize profit? A: marginal product of labor = real wage Q: What are the assumptions and implications of the theory of distribution in the long run? A: demand for capital and labor are given by marginal product in a competitive market and supply of capital and labor are fixed  supply and demand together determine r* and w* Q: Households receive wL and rK (with L and K being fixed); do these payments exhaust national output? A: Yes, because GDP = Y = wL + rK (National Income Account Identity) Q: What makes the S (fixed) curve shift to the right or left? A: taxes, changes in MPC, changes in G & changes in output (because we assumed all these things were fixed in the long run in the national saving equation) Q: What makes the investment curve shift to the right or left? A: investment tax credit from government, uncertainty about future demand & productivity (MP of capital)


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