University of Central Florida (UCF) ECO3203 Intermediate Macroeconomics Practice Exam 1

Variables that a model takes as given are referred to as exogenous variables. In macroeconomic modeling, exogenous variables are those whose values are determined outside the model and are not influenced by the model's internal dynamics. They act as inputs or parameters that help to shape the model's outcomes but do not get explained within the model itself.

For instance, if you consider a model predicting economic growth, variables like government policy, consumer preferences, or technological advancements can be treated as exogenous, as they can impact the economy but are not determined by the model's equations. In contrast, endogenous variables are those whose values are determined within the model based on the relationships defined between different variables, such as output, employment, and inflation in the context of an economic model.

Recognizing the distinction between exogenous and endogenous variables is key in macroeconomic analysis, as it influences how one interprets the effects of different factors on an economy and informs policy implications based on model predictions.