Complete List of Terms and Definitions for UT Paal Midterm 1 Spring '10

Terms Definitions
The big picture in gen. equil. model functioning of each market, and interactions between markets
When households maximize utility, they get utility from consumption or leisure
In the expenditure approach, we used what identity? National Income Accounting, Y=C+I+G+NX
Present consumption + pv of future consumpion must be
the growth factor of X is WHAT (in words) the future X divided by the initial x
If future income increases, Spvt will fall, since income does not change but consumption increases
A change in net taxes will cause consumption to change by -MPC
Given a tax cut but ultimately higher future net taxes, the effect on government saving will be -tax cut
Gov. saving is the same things as gov. budget surplus
What is NX=? NX=EXports-IMports
An increase in technology ______ the production function ___ SCALES the production function UP
The goods market is in equilibrium when desired level of national saving = desired level of investment (plus a current account of 0)
Ricardian equivalence states that given... a tax cut, people will save it all to be able to pay the higher taxes later
The budget set for a household consists of what two contraints? time constraint and income constraint
A change in income will change private saving by 1-MPC....(Spvt=Y-C, so 1-MPC is deriv)
The labor supply curve is in the short run or long run? Short run, always
Corporate profit = Output - Intermidates - payments to factors unowned - depreciation of capital owned
GDP is a stock or flow measure? flow
What price equilibrates the goods market? the real interest rate
If a variable is "given", it must be... exogenous
If the real interest rate goes up, the income effect on borrowers will... consume less now, consume less in future, save more
What is the goal of GDP accounting? measure country's economic OUTPUT
Aggregate consumption is a slightly increase function of real interest rate
The full employment level of employment is also known as the equilibrium level of employment
The response of consumption to changing different income effect variables, i.e. y, nt, yF, ntF, or a, is MPC*partialderiv(PVLR) w.r.t. that variable
In illustrating the effect of change in w on labor supply, our graph will be in long or short run? LONG run, easier
In the goods market, we will assume for now that.. NX = 0 and NFP = 0 (CA = 0)
Firm revenues= factor payments
If amount of K down, labor demand will... decrease
The firm's contraint is... technology, capital, and labor
Wealth = assets - liabilities
Firms will maximize _____, given the subtraction of _____ and _____ output value, given the subtraction of wage and labor
Households supply labor where the highest indifference curve of utility is tangent to the budget constraint
In our Cobb-Douglass production function, "A" represents level of technology
The CA is a flow of payments AND good outflow from our country (or into it)
What do households act as what in each of the markets? labor: supply labor, goods: demand goods/investments, asset: hold money, financial assets, and have debt
The government's goal is to not optimize anything, choices will just effect money supply, taxes, etc for goods/labor/asset market
Given a tax increase but ultimately lower future net taxes, the effect on national saving will be -(1-MPC)*tax increase
The real interest rate going up will cause labor supply to... go up
Fiscal policy is controlled by taxes/gov spending, federal, state, and local legislatures
If TFP down, labor demand will... decrease
Given a higher future net taxes to pay for current government borrowing, the effect on private saving will be MPC*b
private, government or national saving are stock or flow measures? flows
If the real interest rate goes up, there is an incentive to... save more, borrow less, work more to get more money to save
The marginal product of an additional unit of capital assumes what is constant? Labor
What can growth factors be added over a few years to give an approximation of the overall growth? when the growth rates are small and only a few of them together
MPN and MPK are both increasing functions of their opposite respective variables (MPN incr. function of K, MPK incr. function of N)
Comsumption and leisure are both what type of goods? Normal goods
Amplification is a concept entailing... that the labor market amplies technology fluctuations in the output market
Net gov income = T-TR-INT
Factors of production include labor, capital, and "land"/natural resources
Gov. purchases and taxes are endo. or exo.geneous from economic perspective? exogenous
The Real Business Cycle Theory states what? the main source of bus. cycle fluctuations is TFP shocks
National saving = private saving + government saving
Current income not spent on new goods by gov. or by private sector is national saving
The firm will choose the amount of labor such that... the real wage rate = the marginal product of labor
These three things can create a technological shocks: weather, rel. price of intermediate goods, gov regulations
Given a tax cut but ultimately higher future net taxes, the effect on national saving will be 0
Monetary policy is controlled by the Fed, the money supply/interest rates
MPN and MPK are both decreasing functions of their respective variables (MPN decr. function of N, MPK decr. function of K)
If amount of K up, labor demand will... increase
The income approach includes what components? pretax wages, proprietors income, rental income of person, corporate profits, net interest, taxes on production and important, business current transfer payments, current surplus of gov. enterprises
Average growth rate approximation is add up growth rates, divide by number of years
Net National Product is national income + statistical discrepancy
Domestic investment is financed by private saving
The present value lifetime resources (PVLR) is a+y+(yF/(1+r)
Households act to maximize their utility
Given a higher future net taxes to pay for current government borrowing, the effect on government saving will be -b
The gov. deficit is financed by private saving
Five shifters of the labor supply include real wage, wealth, real interest rate, total factor productivity, population
The future value lifetime resources (FVLR) is (a+y)*(1+r) + yF
In the Value added approach, GDP includes goods/services that are produced as NEW, FINAL goods/services, WITHIN a country (as opposed to GNP), during a specific period (flow)
The effect of a change in income on SOMETHING is the derivate of that SOMETHING with respect to income
If current income up, current consumption and future consumption increase because normal goods
If TFP up, labor demand will... increase
If income increases, consumption must... go up
A recession occurs because... TFP falls
The pure income effect can be thought of as a promised increase in future real wages, which in turn effects how much you can borrow now
Given a tax cut but ultimately higher future net taxes, the effect on private saving will be +tax cut
The budget constraint for the trade off between cF and c is (a+y-c)*(1+r)>=aF, or aF +yF>=cF
The budget constraint for a household is c+wl
the government deficit is a stock or flow measure? flow
The value of goods/services sold= value of expenditures on goods/services
What tools do economists use instead of experiments? historical/cross country data, experiments in models
The substitution effect of increased wage (income) on a household says that leisure is now more expnsive, or labor supply (people and hours) up
Capital, private debt and gov. debt are stock or flow? STOCK
If there is a permanent pos. change in the real wage, which effect dominates (income or subst)? income effect, labor supply falls
Amplification means that output will fluctuate more than TFP
The income constraint for a household includes consumption
Private saving = private disposable income - consumption
Saving = private saving + gov saving = (3 things) I + CA = Y + NFP - C - G
The CA is financed by private saving
The gov. budget contraint... exists as a lifetime budget contraint, where its accumulated debt MUSt be paid back, "everything connected to everything else"
The budget contraint of a household is income from labor, assets which must balance with debt over their lifetime (must pay all over their lifetime)
The major difference between economic profit and corporate profit is the exclusive of facot payments owned, and inclusion of depreciation of capital owned by firm (both in corp. profit)
The time constraint for a household includes labor hours + leisure hours = total hours
An increase in wealth will do what to budget line between c and cF? increase, shift out
If wealth up, labor supply goes up
The nominal interest rate is the rate before what is taken into account? inflation
The present value lifetime consumption (PVLC) is c+(cF/(1+r))
The labor demand curve is the same as the marginal product of labor curve
The firm's goal is to... maximize profits (a profit stream of current and expected future)
Given a tax increase but ultimately lower future net taxes, the effect on consumption will be -MPC*tax increase
Increases in immigration, etc, will do what to labor supply in the aggregate? increase it
i is the nominal growth rate
Marginal propensity to consume is % of new income that is consumed
If you increase labor or capital when the other is fixed, output must increase
Three markets in our gen. equil. model labor, goods, asset markets
If future income increases, lending will fall, just like saving
Private saving for a consumer is Private saving = y-nt-c=y-c
The equilibrium level of employement is the full employment level of employment
1+r = (1+i)/(1+inflation)
If inflation is greater than expected... borrowers benefit, lenders lose, r is underestimated
A change in future net taxes will cause Spvt to change by MPC/(1+r)
Given a tax cut but ultimately higher future net taxes, the effect on consumption will be 0
What five things shift the saving supply curve? current income, expected future output, wealth, taxes, current gov expenditures
Slope of budget line between current and cuture consumption is (1+r) or FVLR/PVLR
The marginal product of an additional unit of labor assumes what is constant? Capital
Spvt = y-c
Private disposable income = GNP - T + TR + INT
capital is fixed in the short run
What is a policy action? just one part of the plan, cannot be analyzed on its own (cut taxes now but what about the future?)
In our Cobb-Douglass production function, alpha must be... between 0 and 1
Given a tax increase but ultimately lower future net taxes, the effect on private saving will be -(1-MPC)*tax increase
In our to decide how much a household will work/consume or not work/consume leisure, we must have preferences and budget set of that household
When are indexes used? Cross-country data, or when variables only have growth rates (no base levels)
Labor level can be changed quickly or slowly? quickly
If the real interest rate goes up, the substitution effect on borrowers & lenders will... consume less now, consume more in future, save more now
Present value of gov expenditures = present value of net taxes
New goods that are not consumed by gov. or by private sector is called national saving
If income decreases, consumption must.. go down
The net effect of a real interest rate increase shows that borrowers will definitely... consume less now & save more now, but we don't know if they will consume more or less in the future
Government saving = T-TR-INT-G
GNP is NNP + depreciation
The government acts as what in each of the markets? goods: demands goods, asset: supplies money, labor: we won't assume they demand labor i guess
If current income up, private saving up
If wealth increases, net lending will increase, because more money in bank
Aggregate private saving is a slightly increasing function of real interest rate
A change in net taxes will case Spvt to change by -(1-MPC)
Gov. saving = T-(TR+INT+G)
Net vs. Gross means net takes out depreciation, gross doesn't take it out (or deal with it)
In the asset market, who does what? households&firms demand money, gov supplies money
An equilibrium condition of the goods market includes Y=C+I+G+NX, the NI identity
The increase in aggregate labor supply due to an increase in real interest rate is probably large or small? SMALL, real interest rate will not effect labor supply too much.
The income effect of increased wage (income) on a household says that value of available time increases, consume more of everything (leisure and goods), labor supply falls
The government deficit is equal to gov. saving (when it is negative)
The nominal interest rate is adjusted for inflation to give... the real interest rate
Household's goal is to maximize utility
the growth rate of X is WHAT (in words) the change in X divided by initial value of x
Increase in population will do what to labor supply in the aggregate? increase it
Is gov. policy endo or exo genous? exogenous
What do firms act as in each of the markets? labor: demand labor, goods: supply output for households, demand investment goods, asset: CAN hold money, financial assets, debt
The level of output is determined by what two FACTORS of PRODUCTIOn labor and capital
In the labor market, who does what? households supply labor, firms demand labor, real wage equilibrates market
If wealth increases, saving will fall, because income does not change with increase in consumption
investment, net export, gov purchases are stock or flow measures? flows
Our assumption is that markets must be... competitive
When compounding, what is the equation for annualized growth rate? annual growth rate = (1+growth rate for slice of the year)^(how many slices of the year there are) - 1
The Value added = the value of final output - cost of intermediate inputs
In a clsoed economy, NX = ? and NFP = ? and S = ? NX=0, NFP=0, S=I
National wealth does or does not include human capital? in this stuff, it does NOT
No borrowing no lending point is current consumption takes no money from future, and future income has no saving
If income increases, leisure must... go up
The full employment level of output is the amount of output produce at the full employment level of employment
In the long run, technology (A) tends to _______, leading to ___________________ technology increases, leading to technological progress
Three ways to measure GDP income, product, expenditure
GNP = GDP + NFP
Economic profit = Output - Intermediates - payments to factors of production
Aggregation means to.. ignore heterogeneity of workers/jobs/goods/assets used as money, other financial assets, etc.
Flow quantities are measured... between one time and another
The goods market is in equilibrium when... DESIRED levels of expenditure components (demand) = total output produced (supply)
What price equilibrates the labor market? the real wage rate
What returns to scale is best in Macro? Constant returns to scale
The relationship between the growth rate of x and the growth factor of X is WHAT (in words) growth factor=growth rate + 1
The marginal products of capital/labor are always positive or negative? positive
If a variable is sought to be explained by the model, it is... endogenous
consumption + "other expenditure components, aka saving" MUST equal expenditures
consumption + saving MUST equal income
CA = NX + NFP
If there is a temporary pos. change in the real wage, which effect dominates (income or subst)? substitution effect, labor supply up
The asset market includes... money and non-monetary assets
What is the national income accounting identity? Y=C+I+G+NX
A change in future net taxes will cause consumption to change by -MPC/(1+r)
Total factor productivity is the level of technological advancement in general fields, or technological progress
The future value lifetime consumption (FVCR) is c*(1+r) + cF
Does Macro have more endo. or exo. variables? Endogenous, "almost everything"
How are monetary policy and fiscal policy connected? the gov. budget contraint
Stock quantities are measured... at a point in time
Future government expenditures must = future net taxes - (past bond issues)*(1+r)
why is social science at a disadvantage compared to other sciences? Can't actually perform experiments with people's lives
Given a higher future net taxes to pay for current government borrowing, the effect on national saving will be -(1-MPC)*b
Normative macro is expression of value judgement
Net lending = a+y-c
In the short run, technology (A) tends to _______, leading to ___________________ technology fluctuates, leading to technological shocks
The exception to GDP being measured at market value is gov. output, which is valued at cost
What price equilibrates the goods market? the "price level" (i assume like inflation + fed rate or something)
If income decreases, consumption must... go down
The net effect of a real interest rate increase shows that lenders will definitely... consume more in the future, but we don't know if they will consume more now or save more now (or less)
If inflation is less than expected... borrowers lose, lenders benefit, r is overestimated
What are indexes? measure to level of a variable proportionally, giving a base value
GDP is measured at what value? MARKET value (not book value, aka what you paid for it - its about what its worth)
Positive macro is statement of fact or theory
Three actors in the general equilibrium model households, firms, government
In a closed economy, the national income identity is Y=C+I+G
GDP= GNP-NFP
Current government expenditures must = net taxes + bond issues
In private saving, the _______ effect dominates the ______ effect subsitution effect dominates the income ffect
The statistical descrepancy= NNP - national income
What is a policy plan? complete dynamic plan that deals with lifetime gov. budget contraint
Given a tax increase but ultimately lower future net taxes, the effect on government saving will be 0
The three adjustment needed to make the income approach are "national" to "domestic", "net" income to "gross" production, and adjustment for statistical discrepancy
If the real interest rate goes up, the income effect on lenders will... save less, consume more now, consume more in future
If government deficit goes up, one of what three things must happen? Private saving up, investment down, or CA down
WHAT is adjusted for inflation to give the real interest rate? the nominal rate
Consumption saving means that... at least SOME money will be saved or borrowed
If r is held constant, and PVLR for the assets/income/taxes is set, then there can only be one optimal consumption choice
Given a higher future net taxes to pay for current government borrowing, the effect on consumption will be -MPC*b
The relative price of consumption in terms of leisure is leisure price divided by real wage
A change in income will change future consumption by (1-MPC)*(1-r)....(cF=(a+r-c)*(1-r), so take deriv and ignore the a I guess)
The Real Business Cycle Theory examines ________ in what two main channels? how the economy responds to TFP shocks, via direct channel or indirect channel
The real wage is the price per hour of work in terms of consumption goods earned
The goods market equilibrium condition in a closed economy is S=I
If future income increases, budget set will increase, shift out
Intermeidate inputs are defined as... being USED UP in production of other goods
Gov. saving is the diferrence between gov. receipts - gov outlays
PV net taxes = present value of gov expenditures
If wealth down, labor supply goes down
Households utility is a trade-off between benefits of working (consumption ability), vs cost of working (aka leisure)
National wealth can change if two things happen... market value of assets changes, or CA changes via accumulating more foreign assets