front 1 Macroeconomics | back 1 study of behavior including unemployment, Inflation, recession, and other economy wide phenomenons |
front 2 Microeconomics | back 2 The study of individual decision making by firms and individuals |
front 3 3 Main concerns of macro | back 3 Inflation Unemployment Output Growth |
front 4 Recession | back 4 decline in economic activities (2 Quarters of negative growth real GDP falls) |
front 5 Booms | back 5 Increase or improvement in the inflation adjusted market value of goods and services produced by an economy over time (Fast Growth) |
front 6 Aggregate Output | back 6 Total level of new production of goods and services from an economy |
front 7 Output growth | back 7 Refers to an increase in aggregate output from the previous period |
front 8 GDP | back 8 US the total value of all new goods and services produced within a country's borders in a given period |
front 9 Who measures GDP | back 9 The Bureau of economic analysis |
front 10 What does GDP not include | back 10 NOT: crime, pollution, income distribution, income from citizens living abroad used goods stocks and bonds |
front 11 What does GDP Include | back 11 total consumption of spending, businesses investments, government spending, net exports |
front 12 What is double counting GDP and how is it prevented | back 12 To avoid double counting only include the value of final goods (No intermediate goods) |
front 13 What is the difference between nominal GDP and Real GDP | back 13 Real GDP Tracks the total value of goods and services calculating the quantity but using constant prices that are adjusted for inflation. Nominal GDP does not account for inflation (Real gdp: Constant, Nominal: Current) |
front 14 Structural unemployment | back 14 caused by sectoral shifts, or changes in the structure of the economy |
front 15 Frictional unemployment | back 15 Caused by day to day workings of labor market |
front 16 cyclical unemployment | back 16 changes in unemployment caused by short-run variations in the economy, (such as economic booms or recessions) |
front 17 What makes the natural rate of unemployment | back 17 Structural and frictional unemployment |
front 18 How does high inflation hurt the economy | back 18 Shoe lether/Menu cost Shoe- costs households incur to minimize cash holding during high inflation Menu- costs that businesses face when trying to change prices |
front 19 If inflation is higher/lower than expected then who benefits and who loses | back 19 If inflation is higher than Borrower Benefits If it is lower than lender Benefits |
front 20 CPI | back 20 consumer price index Measure of overall costs of goods and services bought by a typical consumer |
front 21 How is CPI calculated | back 21 Bureau of labor statistics Cost of market basket in given year/cost of market basket in base year X100 |
front 22 What is the focus of supply side policies | back 22 Supply-side policies focus on improving the production capacity and efficiency of an economy. These policies are aimed at increasing the supply of goods and services by improving factors such as labor productivity, technology, infrastructure, and access to capital. |
front 23 What are the characteristics of a consumption function | back 23 relationship between disposable income and consumer spending |
front 24 What is the autonomous level of spending | back 24 C = A + b * Y spending that does not depend on level of income EX. food water shelter rent clothing |
front 25 The marginal propensity to consume | back 25 change in consumption for ever $1 increase in aggregate income (Y) Change in C/Change in Y |
front 26 If aggregate output/income increased by 100, how does consumption increase | back 26 MPC .9, income went up by 100, 50 spent, 10 saved |
front 27 What is the total income Equation | back 27 y = C + S + T |
front 28 How do you find household savings | back 28 S = Y - C equals planned investment at the equilibrium in the macro goods and services market |
front 29 What is the marginal Propensity to save and how do you find it | back 29 MPS = 1 - mpc |
front 30 what is planned investment | back 30 amount of investment firms plan to undertake during a year |
front 31 Why is it called planned | back 31 because it does not include unplanned inventory changes |
front 32 What is planned aggregate expenditure | back 32 AE = C + I + G |
front 33 When graphed with a total output on the horizontal axis what is the significance of a 45 degree line | back 33 Shows all points where aggregate expenditure and output are equal |
front 34 If AE > Y, what is the unplanned change in inventories? How do firms respond? | back 34 Total spending is more than production, unplanned decrease in inventories, firms will increase production |
front 35 If AE < Y, what is the unplanned change in inventories? How do firms respond? | back 35 total spending is less than production, unplanned increase in inventory, firms will decrease production |
front 36 What is the equilibrium level of output | back 36 AE = Y |
front 37 What is a leakage and an injection to spending stream? | back 37 Leakage = Household income not spent S + T Injections= spending from anyone but households I + G |
front 38 At the equilibrium level of output what is true about leakages and injections | back 38 S + T = I + G |
front 39 When either the autonomous level of spending or planned investment changes, what is the change in the equilibrium output? | back 39 Change in Y=Change in ( A, I, G) * 1/1-mpc |
front 40 what is the spending multiplier smaller in the real world vs our model | back 40 Fiscal Drag= when output increases, income increases, and households move up income brackets and the marginal tax increases maxing the size of the multiplier decrease |
front 41 What is Fiscal policy and who sets it at the federal level | back 41 Budget policies that affect government spending and tax revenues. House of representatives, senate, and president set it at the fed level |
front 42 What is disposable income | back 42 YD= Y - T |
front 43 What is the intercept of planned aggregate expenditure? what is the slope? | back 43 Intercept = a -bt+ I + G Slope = BY |
front 44 what is a budget deficit or surplus | back 44 The federal deficit or surplus is either excess spending that must be borrowed or excess tax revenues for a fiscal year T-G |
front 45 What is government debt? | back 45 Total accumulated debt owed by the government |
front 46 What is the difference | back 46 government debt is the total accumulation of deficit and surplus |
front 47 if the federal government is running a deficit/surplus, what happens to the federal debt? | back 47 If G>T the government is spending less than tax receipts and there is a surplus of T-G>0 |
front 48 What is the tax multiplier | back 48 The factor that a change in tax will make a change in GDP |
front 49 Why is it smaller than the spending multipler | back 49 This is because the entire government spending goes towards increasing aggregate demand but only small portion of the increased disposable income is consumed |
front 50 What are automatic stabilizer | back 50 Taxes and spending that are counter-cyclical to change in output Cause deficits to increase during recessions and decrease during expansion |
front 51 What are a cyclical deficit and a structural deficit | back 51 cyclical- the portion of the budget balance attribute to short run changes in economic conditions Structural- A government budget that persists even when the economy is at full employment |
front 52 What is the "full-employment" level of output | back 52 Output of the natural rate of unemployment |
front 53 What role does the federal reserve serve | back 53 Regulate and monitor the private banking system Manage money |
front 54 What is the FOMC | back 54 Federal Open Market Committee |
front 55 Who makes up the FOMC | back 55 12 members 7 Members of the board of governors of the federal reserve system - president of the federal reserve bank |
front 56 What happens when the federal reserve purchase t-bills or sells t-bills | back 56 becomes open market operations creates money when buying T-bills, decreases money supply when selling T Bills |
front 57 How does this purchase or sell affect the private banking system? | back 57 Decreases/Increases their reserves |
front 58 How does expansion monetary policy increase output? | back 58 by increasing the money supply |
front 59 How does contractionary monetary policy decrease output? | back 59 By decreasing the money Supply |
front 60 How does expansionary Fiscal policy increase output? | back 60 Increasing the government spending or decrease in taxes |
front 61 What is crowding out | back 61 Increased government spending leads to borrowing more which makes a decrease planned |
front 62 What does aggregate demand show? why is AD downward sloping? | back 62 The relationship between output and price An increase in the interest rates causes a decrease in planned investment |
front 63 Explain Interest Rate Effect on Planned Investment, the Consumption Link to interest rates, and the Real Wealth Effect. | back 63 An increase in interest rate causes a decrease in planned investment and consumption, saving increases, and consumption rises when real wealth rises |
front 64 what causes AD to shift and in which direction | back 64 aggregate demand shifts to the right as consumption, investment, government spending, and spending on exports Shifts to the right |
front 65 How does Monetary Policy and/or Fiscal Policy shift the AD curve? | back 65 an increase in money supply shifts the money supply to the right An increase in government purchases or a cut in taxes shifts the curve to the right |
front 66 why does the short run aggregate supply curve slope upwards | back 66 that means a decrease in the overall price level results in a lower quality of goods and services supplied and vice versa |
front 67 if output prices rise and wages remain unchanged, what happens to firms profit maximizing out and vice versa? | back 67 SRAS slopes upward because of sticky wages |
front 68 why is the SRAS curve flat on the left side and steep on the right side? | back 68 The SRAS curve slopes because sticky input prices and sticky output prices |
front 69 what factors shift the SRAS curve? what factors shift the LRAS curve? | back 69 the cost of labor or wages and the cost of imported goods that we use as inputs for other products LRAS when economy experiences an increase in growth and investments the long run aggregate supply curve also shifts to the right and vise versa |
front 70 On the AD/AS graph, what does the P represent on the vertical axis? | back 70 P represents the price level, |
front 71 What does Y represent on the horizontal Axis for the AD/as graph | back 71 y = output |
front 72 why is long run aggregate supply curve vertical | back 72 because in the long run an output that an economy can produce is not related to the price level |
front 73 What is Potential GDP | back 73 refers to highest level of gross domestic product that can be sustained long term |
front 74 What is the natural rate of unemployment | back 74 4.8% |
front 75 What are the two components of the natural rate of unemployment | back 75 frictional and structural |
front 76 How does monetary policy affect the AD/AS Graph | back 76 Monetary policy increases aggregate demand through expansionary tools |
front 77 how does fiscal policy affect the AD/AS graph | back 77 an increase in government purchases or a cut in taxes shifts the aggregate demand curve to the right |
front 78 How does the Keynesian model adjust to the long run? | back 78 focusing on short run adjustments risk overlooking long term causes of economic growth |
front 79 Why are wages sticky | back 79 Slow response to change in: long term contracts imperfect information to firms, minimum wage, the social contracts that employers will not lower your wage |
front 80 What does the Short-Run Phillips Curve show? | back 80 shows relationship between inflation and unemployment |
front 81 What is represented on the vertical axis and horizontal axis of a Phillips Curve graph?How does the economy move from one point on the Phillips Curve to another? | back 81 Y - inflation X- unemployment Economy moves as inflation increases and unemployment decreases |
front 82 What causes the Phillips curve to shift? Review the causes and results of shifts in the Short-Run Phillips curve. For instance, how does Demand Pull Inflation shift the Short-Run Phillips Curve? Cost-Push Inflation? | back 82 Supply shock and inflation cause the PC to shift. Demand pull increase in AD upward movement along PX Unemployment rate decreases as inflation rises Cost-push expected rate of inflation. will cause SRPC to decrease |
front 83 Hows does the fed flight inflation? If the fed successfully lowers expected inflation how does the short run Phillips curve respond | back 83 Fed fight inflation by influencing interest rates, This will cause srpc to shift |
front 84 what does LRPC show? why does it have a different that the short run phillips curve and what is the implication of that | back 84 RPC shows that there is no trade off between inflation and unemployment in the long run employment and inflation can change |
front 85 Nominal GDP | back 85 P Current X q Current |
front 86 Real GDP | back 86 P Base X Q Current |
front 87 Real GDP growth rate | back 87 End - beginning/Beginning X 100 |
front 88 Deflator | back 88 Nominal/Real X 100 pts. |
front 89 Inflation | back 89 end - beginning/beginning X. 100% |
front 90 Find Y, YD, C, S | back 90 AE= C + I + G Yd = Y - T S = Y - t - c S + T = G + I |
front 91 C YD or Y - T | back 91 Consumption planned investment taxes gov purchases savings real output/income disposable income |