final notes n quotes

Economics 203 with Edwardson at Texas A&M University

About this deck

By: Ashley Nettleship
Textbook:

Principles of Macroeconomics
Created: 2010-05-06
Size: 112 flashcards
Views: 22

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in ___ nominal variables effect other variables in a countrys GDP

short term

in short term __ effect other variable in a countrys GDP

nominal variables

what does the aggregate demand and supply apply to

the busn cycle which is a periodic but irregular up and down mvmt in production and jobs

___- demand model which provides a framework for understanding short run fluctuationsin economic activitiy

aggregate supply

what are the 3 facts about economic fluctuations

econ fluctutations are irregular and unpredictable
most macroeconomic variables fluctuate together
as output falls, umemployment rises

what is unemp referred to as

counter cyclical vairable

whats teh counter cyclical variable

unemp

__- shows total demand for the economys goods and services at each price level

aggregate demand

what does the aggregate demand specify

there is a negative relationship b/t the price level and the quantity of real GDP demanded

what are the 3 reasons why demand cure slopes down

wealth effect
interest rate effect
exchange rate effect

what do highers prices reduce

monetary wealth

what does the interst rate effect of a change in the price level show

that when the price level increases the money demand also increases along wit the interest rates

if investment falls, GDP __

falls

what does the exchange rate effect of a change in the price level show

that when price levels rise, rates increase and the net capital outflow decreases

an increase in the price level causes an __ in real interest rates

increase

an increase in the real exchange rate __ net exports b/c products become more expensive for foreign countries

reduces

anything other tahn a change in the price level or a change in income taht causes a change in spending will __

shift the aggregate demand curve

change in __ or __ shifts the aggregate demand curve

consumer or busn optimism

a change in __ can increase the money supply and push the aggregate demand curve to the right

monetary policy

___- increase in gov spending or a tax cut which shifts aggregate demand to the right

fiscal policy

when ___, there is a drop in every other factor in a countrys GDP

prices rise

what does the aggregate supply curve show

the total quantity of goods and services supplied in teh economy at each price level

in the short run the aggreate supply curve is __

downward sloping

The SR aggregate supply curve is __ while the long run supply curve is ___

downward, vertical

in teh long run equilibrium is equal to ___

potential GDP

___- when the economy is at full employments output level

natural rate of output

long run equilibrium=___=___

potential GDP=natural rate of output

what effects teh real GDP in teh long run?

amt of resources and technology

does price level effect real GDP int eh long run

more resources and advances in tech will shift the LR aggregate supply curve to the __

right

whats teh 3 theories as to why the SR aggregate supply curve is upward sloping

sticky wages, sticky prices, and misperceptions

shift the SR aggregate supply curve left and input prices __

increase

a change in ppl's expectattions for fututre prices cause an increaase in expected future prices and shirt sr aggregate supply __

left

LR equilibrium char. include a __ that shld equal __

real GDP= real GDP supplid

what does Y=Y* mean

real GDP=real GDP supplied

if Y=Y* then outpout is __

at its national or full employment level

what does P=P* mean

actual price level= expected price level

at LR equilibrium ___ =0

cyclical unemployment

what does u=natural u mean?

at LR equil. cyclical unemp. =0

SR equil. is = ____ which is equal to +++

aggregate supply curve, aggregate demand curve

in the SR GDP may be __ to potential GDP

greater than, less than, or equal to

shifts in aggregate demand creates __ and shifts the ___

demand shochs, aggregate demand and supply

causes of econ fluctutaions are __

shifts in aggregate demand and supply

when Y>Y* ____

expected future prices are increasea nd the SR aggregate supply shifts to

suppose we have a positive demand shock, something raises demand and the SR impact is that __ and __ increase, and __ falls

output and price level increases, unemp. falls

what will happen as a result of a positive demand shock in teh LR

prices will go up

In the short run after a positive demand shock, __ and __ increase, and the actual GDP is __ than the potential GDP

Y and P, greater

whats a real life example of a SR agg. supply shifting left

1973 arab oil embargo

when actual GDP is less than potential GDO ppl adjuct their expectiations of future prices ___ and SR agg. supply shifts __

downward, right

in the __ model- interest rates adjucst to balance money supply and money demand

liquidity prefence model

in teh liquidity preference model, int. rates adjust to balance __ and __

money supply and money demand

in the liquidity pref. model money supply is controlled by __

the Fed

how does the fed primarily change money supply in the liquid. pref. model

open mkt operations

(t/f) the money supply is dependent on interest rates

false

___- opp. cost of holding money

interest rate

when int. rates are high, __ is low

money demand

when int. rates are high where do ppl want their money

in bonds

there is a ___ relationship b/t the int. rate and teh quantity of money demanded

negative

money demand will increase if the income interest (or __) increase of price level ___, which __ int. rates

GDP, increases, increases

an increase in money supply causes int rates to __

fall

an increase in money supply leads to a __ in aggregate demand, why?

increase, b/c int rates fall

aggregate demand increases, which results in a SR increase in __ and __

P and Y

__- is used by the FEd to shift the agg. demand which wld bring the economy back to LR equil

monetary policy

using monetary policy to shift agg. demand to bring teh econ back to LR equil., the fed wld increase __ through

money supply, open mkt purchases

what happens when the fed makes an open mkt purchase

money supply increases, int rates decrease and consumption and investment increase. the aggr. demand shifts to the right

the feds goals are to promote __, __, and ___

stable growth, low inflation, and low unempl

what is teh fed's primary tool for achieveing its goals

open mkt operations

___- sets target int rates to help achieve its goals

Federal open mkt committee

what is teh only int rate that fed has absolute control over

discount rate

__- rate at which the fed lends funds to banks

discount rate

does discount rate effect costs?

yes

__- int rate banks charge when they lend to other banks

Federal runds rate

how can the fed raise or lower the federal funds rate

by selling or buying gov. bonds

what does raising target mean

fed is tryin got slow the economy

____- fed is trying to boost the economy

lowering target

does the fed have immediate control?

what happens to the agg demand curve if the fed lowers their federal funds target

shifts right

in terms of __, gov. spending directly affects agg demand

fiscal policy

in terms of fiscal policy, gov. spending directly affects aggregate __

agg demand

an increase in gov. spending shifts agg. demand __

right

the __ shows that a $1 increase in gov. spending can lead to a more than $1 increase in agg. demand, what does this depend on?

multiplier effect, expenditure multiplier

___- shows increase in agg demand generated by a $1 increase in gov. spending

expenditure multiplier

what does MPC stand for

marginal propensity to consume

__- amt by which consumption increses when disposable income increases when disposable income increases by $1

MPC

the change in agg demand is equal to the change in ___x___

gov. spending times expenditure multiplier

how does a tax cut increase consumption

creating more disposable income

increased consumption shifts the agg demand curve __

right

the __ is when agg deman increases to demand curve 2, and the __ is when the agg demand curve 2 decreases to form a agg demand 3

multiplier effect, crowding out

if theres a $1 increase in gov. spending, agg demand will increse by more than $1 if the __>___

mult. efect is greater tahn the crowding out effect

if the mult effect is less than the crowding out effect than if gov. spending was to increase by $1, wld agg demand increase by more or less than $1

less

(t/f) output will go back to equil level

true

policy makers use __ as a solution to increase money supply

monetary policy

fiscal policy is utilized by ___ or ___, and as a reslt shift the agg demand curve to the right

increasing gov. spending or increasing taxes

what happens if the economy self adjusts

equil prices dop

what happens if policies are used to return output levels to equil.

prices rise

how does the fed usually have to keep infaltion in check

fiscal policies

___ are built into the economic syste to help make shifts in teh economy more gradual and smooth

automatic stabilizers

when GDP rises, gov. spending __ and tax revenues __

decrease, increase

who discovered a pattern b/t inflation rates and unemp. rates in early british history

economist phillips

philips discovered a pattern b/t what 2 things

infaltion and umemp. rates

__ shows teh tradeoff b/t unemp. and infaltions

phillips curve

the phillip curves shows that a lower rate of unemp. is associated with a __ rate of infaltions

higher

the phillips curve shows the combinations of unemp and inflation arising in the SR as __

the agg demand curve shifts

the SR phillips curve says an unexpected increse in teh agg demand results in movements __ the SR curve

an unexpected decreas in ____ results in mvmts down the SR phillips curve

mvmts down

what does the LR phillips curve show

there is no tradeoff b/t infaltion and unemployment

the phillips curve says that in the LR the unemployment rate is = to what?

the natural rate of unemployment

in the LR the phillips curve slopes

vertical

In the LR of the phillips curve the actual inflations rate is = to __

expected infaltions rate

what will happen if expected inflation increases in the phillips curve/

there wil be a shift in the SR phillips curve right

___- the proposition that when the money supply growth rate changtes, the unemployment rate changes temporarily and eventually returns to the naturla rate of unemployment

natural rate hypothesis

the natural rate hypotheis says that if money supply growth rate changes, the unemployment rate ___

changes temp. and eventually returns to the natural rate of unemp.

About this deck

By: Ashley Nettleship
Textbook:

Principles of Macroeconomics
Created: 2010-05-06
Size: 112 flashcards
Views: 22

About StudyBlue

“I have used this website for three exams, and I see a huge difference in my test results.”
Naj