BADM
7200
Macroeconomics
Ch.1
-
3
Accounting
profit
-
ANS-The
amount
of
revenue
remaining
for
the
owners
of
a
firm
after
all
the
factors
of
production
except
capital
have
been
compensated
Cobb-Douglas
production
function
-
ANS-A
production
function
of
the
form
F(K,L)
=
AK
alpha
L
1
-
alpha
where
K
is
capital,
L
is
labor,
and
A
and
alpha
are
parameters
Competitive
firm
-
ANS-Small
relative
to
the
markets
in
which
it
trades,
so
it
has
little
influence
on
market
prices
Constant
returns
to
scale
-
ANS-A
property
of
a
production
function
whereby
a
proportionate
increase
in
all
factors
of
production
leads
to
an
increase
in
output
of
the
same
proportion
Consumer
Price
Index
(CPI)
-
ANS-A
measure
of
the
overall
level
of
prices
that
shows
the
cost
of
a
fixed
basket
of
consumer
goods
relative
to
the
cost
of
the
same
basket
in
a
base
year
Consumption
-
ANS-The
value
of
all
goods
and
services
bought
by
households.
Includes:
-durable
goods
last
a
long
time
e.g.,
cars,
home
appliances
-nondurable
goods
last
a
short
time
e.g.,
food,
clothing
services
-intangible
items
purchased
by
consumers
e.g.,
dry
cleaning,
air
travel
Consumption
function
-
ANS-A
relationship
showing
the
determinants
of
consumption;
for
example
a
relationship
between
consumption
and
disposable
income,
C
=
C(Y
-
T)
Crowding
out
-
ANS-The
reduction
in
investment
that
results
when
expansionary
fiscal
policy
raises
the
interest
rate
Deflation
-
ANS-A
decrease
in
the
overall
level
of
prices
or
period
of
falling
prices
Depressions
-
ANS-A
very
severe
recession
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