Eco 2013 Hammock 2017 - Assignment Essays

question

Scarcity

answer

exists and scarcity implies trade-offs - stuff is limited which leads to making choices

question

Opportunity cost

answer

value of the next best thing we give up to get something else

question

Rational self-interest

answer

People tend to chose rationally as they respond to incentives and make decisions at the margin

question

Positive Economics

answer

"the way the world is"

Ex: the rate of unemployment IS 10p; the sky is blue

question

Normative economics

answer

"how the world ought to be"

Ex: the sky SHOULD BE blue; we should have a minimum wage

question

Ceteris Paribus

answer

other things the same/leaving things aside

question

Macroeconomics

answer

study of behavior of economic aggregates (gdp, inflation)

question

Simple trade

answer

(voluntary exchange creates value) Trade is efficient; beneficial

question

Production Possibilities Frontier

answer

-Shows the amount of goods possible to produce

-If a point is within the line graph = inefficient

-If a point is outside of the graph = impossible because limited sources

question

The Law of Demand

answer

as price rises, quantity demanded falls; downward slope (inverse relationship)

question

The Law of Supply

answer

as price rises, quantity supplied rises; upward slope (positive relationship)

question

Change in Demand

answer

Shifts demand curve

Shift to right = increase
Shift to left = Decrease

question

Change in Quantity Demanded

answer

Shift along the demand curve

Shift to right = increase
Shift to left = Decrease

question

Change in Supply

answer

Shifts supply curve

Shift to right = increase
Shift to left = Decrease

question

Shift in quantity supplied

answer

Shift along the supply curve

Shift to right = increase
Shift to left = Decrease

question

Things that change Demand

answer

- Change in quality/info about good
- income
- price of substitutes/complements
- natural disasters
- future availability
- advertising
- changes in taste & preferences
- # of consumers

question

Things that shift Supply

answer

- Change in input prices
- Technology
- Number of firms
- Natural disasters
- Quality of inputs
- Taxes and subsidies

question

Equilibrium

answer

o supply and demand intersect (Qs=Qd)

o efficient; total surplus is maximized; only consumers and producers are in charge of making this happen

o marginal cost=marginal benefit

o unit produced as a benefit to consumers that is greater than the cost of its production

question

Demand Shifts Right = Equilibrium...

Demand Shifts Left = Equilibrium...

answer

- If demand shifts to the right, equilibrium will increase and shift right
Ex: Doctors say wearing shoes is now good for your back

-If demand shifts the left, eq. will decrease and shift left

question

Supply Shifts Right = Equilibrium...

Supply Shifts Left = Equilibrium...

answer

-If supply shifts to the right, eq. will decrease and shift right
Ex: Technology improves

-If supply shifts to the left, eq will increase and shift left
Ex: Oil becomes more costly so what happens to tires

question

Supply goes Up and Demand goes Down = Quantity & Price...

answer

-If Supply goes up and Demand goes down...Price goes Down and Quantity is Indeterminate

question

Demand goes up and Supply goes Down = Quantity and Price...

answer

-If Demand goes up and Supply goes down... Price will go Up and Quantity is indeterminate

question

Demand and Supply go Up = Quantity and Price...

answer

If both Supply and Demand Increase...Quantity will go Up and Price is Indefinite

question

Demand and Supply go Down = Quantity and Price...

answer

-If Supply goes down and Demand goes down...Quantity will go Down and Price is Indefinite

question

Consumer Surplus

answer

difference between what consumers are willing to pay and what they will pay

-Above Producer Surplus on Graph

question

Producer Surplus

answer

difference between what a firm gets paid and the cost of producing an additional unit

-Below Producer Surplus on Graph

question

Total Surplus

answer

consumer and produce surplus combined (CS + PS= TS)

question

Efficiency

answer

every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency

question

Price Controls

answer

legally imposed price restrictions

question

Price ceilings

answer

- Maximum Legal Price. A price ceiling under equilibrium will create a Shortage (there will be dead weight loss- lost consumer and producer surplus)

-Find the shortage by subtracting Qd-Qs

-A ceiling over equilibrium is non-binding

question

Price floors

answer

- a minimum legal price. A price floor over equilibrium will create a Surplus (there will be d.w.l. also)

Qs-Qd to find

-Price ceilings and price floors are inefficient and always cause d.w.l.
side effects (black markets, discrimination, changes in quality, etc.)

question

Deadweight Loss

answer

total surplus falls; lost consumer and producer surplus

question

Elasticity

answer

-how responsive quantity is when price changes

question

Inelastic Good

answer

Ex: Insulin: (diabetic medicine) is INELASTIC because it is needed by diabetics - not responsive to price changes; demand will stay the same but supply could shift right

question

Elastic Good

answer

Ex: Interior decorating: This good is not a necessity. Its demand curve changes with price

question

Are Taxes Efficient?

answer

- not efficient; harms both sides; moves supply and/or demand left

1) The burden of a tax is the deadweight loss.
2) The burden of a tax is not determined by the legal assignment.
3) The burden of a tax is determined by the relative elasticities of supply and demand.

question

Market Failure

answer

-when the pursuit of individual self interest leads to a collectively irrational or inefficient outcome

question

Monopoly

answer

one huge company, no competition

question

Public Goods

answer

-non-rivalrous (one person's consumption doesn't stop others i.e. TV) and non-excludable (one person pays for a lighthouse but everyone can see the light whether they payed or not); solution can be taxes ^

question

Positive Externality

answer

Something you benefit from the benefit of others

Ex: neighbors take care of their landscaping and it looks good

question

Negative Externality

answer

Something that helps one individual or group but hurts everyone else

Ex: pollution, someone eating chips too loudly

question

The Tragedy of the Commons

answer

-when a resource is unowned or owned in common, it is often overused or abused; solutions can include switching to private property and quotas

-Example: fisheries or a common pasture

question

The Tragedy of the Anticommons

answer

- too many people have property rights, or the right to say "no," so the resource doesn't get used

-Example: Russian mafia regulating shopping malls, patent trolls

question

Information Problems

answer

-when consumers cannot obtain all useful info so some trades do not occur

-Examples: used car sales overdramatic

question

public choice

answer

rationally self-invested individuals; actions determined by their preferences and the incentives created by the system of laws and norms

question

Public interest

answer

the government translates the people's preferences into effective policy action

question

Rational ignorance

answer

people choose ignorance because becoming informed is costly with low benefits

question

Rational abstention

answer

people choose not to vote because it is costly with low benefits

question

Bureaucrats

answer

want a bigger budget to expand agencies; persuade politicians to prove it

question

The Special Interest Effect

answer

inefficient policy can persist because concentrated groups beat widespread groups

question

Stocks

answer

amount or the water already in the "tub"

question

Flows

answer

changes over time; water flowing into the "tub"

question

GDP

answer

-gross domestic product

o Market value of all final goods and services produced within a country within a year
o Does not show who produced something or what was produced

question

Final Good

answer

it has reached the last person who buys it as a new product i.e. a sandwich

question

Intermediate Good

answer

Goods used to make Final goods

ex: memory foam used to make mattresses

question

Income approach for GDP

answer

Adding up everyones Income

question

Expenditure approach for GDP

answer

- add up spending

-Y = C + I + G + NX

-GDP = Consumption + investment + government + (net exports - net imports)

question

Per Capita GDP

answer

(GDP/Population)

question

Problems with GDP

answer

o Nonmarket Production- household prod.
-Ex. Mowing the lawn
o Black and Grey Market Production- illegal goods and services
o Leisure and Job Quality- not counted in
o Product Quality and New Goods- not counted in
o Economic "bads"- can make GDP go up
o Income inequality and poverty

question

Price level

answer

a measure of the prices of goods and services

question

Inflation

answer

an increase in the price level; a flow

question

Disinflation

answer

a decrease in the inflation rate; flow of a flow

question

Deflation

answer

a decrease in the price level; a flow

question

Nominal GDP

answer

measured in contemporaneous prices (SAME time)

question

Real Gdp

answer

GDP measured using a BASE YEAR price

question

When GDP Decreases Price Level..

answer

price level decreases and vise versa

question

GDP Deflator

answer

(Nominal GDP/Real GDP) * 100

question

CPI

answer

-tracks the cost of an ordinary consumer's typical purchases over time

-CPI overstates inflation because it doesn't account for:
o Improvements in product quality
o changes in consumption due to prices

question

Calculating Inflation percentage

answer

o (Xnew - Xold)/(Xold) * 100
Example: 200 last yr, 206 this yr
(206-200)/200 100 = 6/200 100 = 3%

question

Adjusting a nominal figure for inflation

answer

-We can move dollar figures through time
Example: in 1971 a certain car costs = $3,000 with a CPI of 40

now it costs $17,000 in 2016 with a CPI of 240 (240/40 = 6, times higher)
- 3,000 * 240/40 = $18,000
o It would take $18000 to buy a car in 2016 with 1971 prices, so prices have dec.

question

employed

answer

work for pay, worked without pay in fam business, temporarily laid off from your current job

question

unemployed

answer

don't have a job and are available to work, have looked for work in the past four weeks

question

Labor Force Participation Rate equation

answer

(labor force/non-institutionalized adult civilian population) * 100 = __%

question

Unemployment Rate equation

answer

(unemployed/labor force) * 100 = __%

question

Frictional Unemployment

answer

ordinary search (can be affected by labor market policies)

question

Structural Unemployment

answer

can't find jobs because they're skills don't match

question

Seasonal Unemployment

answer

rise and falls predictably with seasons

question

Cyclical

answer

occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. In an economy, demand for most goods falls, less production is needed

question

Natural Rate of Unemployment

answer

-Frictional + Structural
The unemployment rate when the economy is growing at a natural rate

question

Full Employment

answer

The rate of employment when the unemployment rate is at its natural rate

question

Potential GDP

answer

Value of output when unemployment is at its natural rate

question

Menu Costs

answer

The costs of updating Prices

Ex: Having Publix workers update all of the food every time price changes

question

Shoe leather Costs

answer

the cost of frequent and frantic trips to the bank

Ex. Don't want to lose interest

question

Loanable Funds Market

answer

theory of the market interest rate. According to this approach, the interest rate is determined by the demand for and supply of loanable funds

question

Fisher's Equation

answer

Difference between the nominal interest rate and the real interest rate

i = r + pi (3.14)

question

Foreign Exchange Market

answer

o Dollars leave the country - imports and capital outflow
Americans need foreign currency to pay for these = demand
o Dollars enter the country - exports and capital inflow
Foreigners need dollars to pay for these = supply

question

Appreciation

answer

when the value of the dollar rises (or it buys more currency)/ the dollar is stronger

question

Depreciation

answer

when the value of the dollar falls (or it buys less foreign currency)/ the dollar is weaker

question

3 Uses of Money

answer

o Medium of exchange- avoids "double coincidence of wants" problem
o Unit of account- you can do accounting
o Store of Value

question

Liquidity

answer

an asset is liquid if it is close to cash

question

Fiat Money

answer

Has value by order of the government

question

Commodity money

answer

Has value because it is a commodity or backed by one

question

Money Multiplier

answer

1/reserve requirment

question

Reserve Requirement

answer

Amount banks are required to keep in reserves

Reserve Requirement goes up money supply goes down

question

Open Market Operations

answer

if the Fed buys treasury bills from banks, money supply with rise

If fed sells treasury bills from banks, money supply will fall

question

Discount Rate

answer

Interest rate the fed charges banks

Lowering this increases money supply

question

Equation of Exchange

answer

Stocks Version:
Money supply Velocity = Price level GDP real"
Ex. 2 V = 198 2 ... so V = 198

Flow Version:
%change M + %change V = %change P + %change Y
Ex. US economy: 5% + 0% = 2% + 3%

question

Rule of 70

answer

if something is growing at x% per year, it will double in 70/x years

Example: growing at 2% per year, how long will it take to double? ... = 35 years or 70/2

question

Why do economies grow?

answer

Natural resources (it's bad when a country only has one natural resource, it will have slow growth),
physical and human capital (capitual accumulation, people become more productive, diminishing returns)
technological progress (use resources more efficiently)

question

Comparative Advantage

answer

the ability to produce a good at the lowest opportunity cost

question

What do tariffs and quotas do to total surplus?

answer

Reduce total surplus

question

Petition of Candlemakers

answer

forcing people to pay for something when a free alternative is available is often a waste of resources.

question

Dumping

answer

Is bad. Foreign markets will come in with lower prices than domestic prices only to raise them later

question

Dynamic Aggregate Demand

answer

economic measurement of the sum of all final goods and services produced in an economy, expressed as the total amount of money exchanged for those goods and services.

question

Slow Growth Curve

answer

depicts the economy's long run growth rate; there is no relationship between inflation and economic growth; the SGC is a vertical, straight line

question

Short Run Aggregate Supply

answer

Dictated by both price and production

question

Factors which shift each of these curves

answer

o The Fed injects money at a faster rate (%M (Money Supply) = increases)
o If the reserve requirement increases (%M = decreases)
o Spend money quickly (%V (money Velocity)= increases) or slowly (%V = decreases)

question

Iowa Car crop

answer

if we tax the cars imported from japan, we are hurting Iowa farm who are growing wheat and trading the wheat for cars

question

What happens if %∆𝑀 rises or falls?

answer

o Rises= growth goes up then returns to its long term and inflation goes up
o Falls= growth fell than rose to its long term rate and inflation fell

question

What happens if %∆𝑉 rises or falls?

answer

o Rises = growth rises than falls, inflation rises and then falls
o Falls = growth falls then rises, inflation falls then rises

question

What happens if there is a supply shock?

answer

o an event that suddenly increases or decreases the supply of a commodity or service, or of commodities and services in general
o affects the equilibrium price of the good or service or the economy's general price level.

question

Fiscal Policy

answer

the use of government spending and taxes, which change velocity growth, shifting Aggregate Demand

Government cuts taxes and creates spending to shift the aggregate demand curve to the right

question

The Keynesian Multiplier

answer

1 / (1−𝑀𝑃𝐶)
o Example: 1 / (1- 0.9) = 1 / 0.1 = 10

question

Monetary Policy

answer

the Fed can use its tools to speed up or slow down money supply growth, shifting AD

When the fed changes money supply this changes the amount of money banks can lend out, this changes spending

question

Crowding out

answer

more borrowing drives up interest rates which crowds out private borrowing

question

Ricardian equivalence

answer

if people anticipate that current borrowing means future taxes they might not spend ... this is ineffective

question

Lags

answer

takes time to recognize problems, Congress to act, implement a policy, economy to respond

1 of 117

question

Scarcity

answer

exists and scarcity implies trade-offs - stuff is limited which leads to making choices

question

Opportunity cost

answer

value of the next best thing we give up to get something else

question

Rational self-interest

answer

People tend to chose rationally as they respond to incentives and make decisions at the margin

question

Positive Economics

answer

"the way the world is"

Ex: the rate of unemployment IS 10p; the sky is blue

question

Normative economics

answer

"how the world ought to be"

Ex: the sky SHOULD BE blue; we should have a minimum wage

question

Ceteris Paribus

answer

other things the same/leaving things aside

question

Macroeconomics

answer

study of behavior of economic aggregates (gdp, inflation)

question

Simple trade

answer

(voluntary exchange creates value) Trade is efficient; beneficial

question

Production Possibilities Frontier

answer

-Shows the amount of goods possible to produce

-If a point is within the line graph = inefficient

-If a point is outside of the graph = impossible because limited sources

question

The Law of Demand

answer

as price rises, quantity demanded falls; downward slope (inverse relationship)

question

The Law of Supply

answer

as price rises, quantity supplied rises; upward slope (positive relationship)

question

Change in Demand

answer

Shifts demand curve

Shift to right = increase
Shift to left = Decrease

question

Change in Quantity Demanded

answer

Shift along the demand curve

Shift to right = increase
Shift to left = Decrease

question

Change in Supply

answer

Shifts supply curve

Shift to right = increase
Shift to left = Decrease

question

Shift in quantity supplied

answer

Shift along the supply curve

Shift to right = increase
Shift to left = Decrease

question

Things that change Demand

answer

- Change in quality/info about good
- income
- price of substitutes/complements
- natural disasters
- future availability
- advertising
- changes in taste & preferences
- # of consumers

question

Things that shift Supply

answer

- Change in input prices
- Technology
- Number of firms
- Natural disasters
- Quality of inputs
- Taxes and subsidies

question

Equilibrium

answer

question

Demand Shifts Right = Equilibrium...

Demand Shifts Left = Equilibrium...

answer

- If demand shifts to the right, equilibrium will increase and shift right
Ex: Doctors say wearing shoes is now good for your back

-If demand shifts the left, eq. will decrease and shift left

question

Supply Shifts Right = Equilibrium...

Supply Shifts Left = Equilibrium...

answer

question

Supply goes Up and Demand goes Down = Quantity & Price...

answer

-If Supply goes up and Demand goes down...Price goes Down and Quantity is Indeterminate

question

Demand goes up and Supply goes Down = Quantity and Price...

answer

-If Demand goes up and Supply goes down... Price will go Up and Quantity is indeterminate

question

Demand and Supply go Up = Quantity and Price...

answer

If both Supply and Demand Increase...Quantity will go Up and Price is Indefinite

question

Demand and Supply go Down = Quantity and Price...

answer

-If Supply goes down and Demand goes down...Quantity will go Down and Price is Indefinite

question

Consumer Surplus

answer

difference between what consumers are willing to pay and what they will pay

-Above Producer Surplus on Graph

question

Producer Surplus

answer

difference between what a firm gets paid and the cost of producing an additional unit

-Below Producer Surplus on Graph

question

Total Surplus

answer

consumer and produce surplus combined (CS + PS= TS)

question

Efficiency

answer

every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency

question

Price Controls

answer

legally imposed price restrictions

question

Price ceilings

answer

question

Price floors

answer

question

Deadweight Loss

answer

total surplus falls; lost consumer and producer surplus

question

Elasticity

answer

-how responsive quantity is when price changes

question

Inelastic Good

answer

Ex: Insulin: (diabetic medicine) is INELASTIC because it is needed by diabetics - not responsive to price changes; demand will stay the same but supply could shift right

question

Elastic Good

answer

Ex: Interior decorating: This good is not a necessity. Its demand curve changes with price

question

Are Taxes Efficient?

answer

question

Market Failure

answer

-when the pursuit of individual self interest leads to a collectively irrational or inefficient outcome

question

Monopoly

answer

one huge company, no competition

question

Public Goods

answer

question

Positive Externality

answer

Something you benefit from the benefit of others

Ex: neighbors take care of their landscaping and it looks good

question

Negative Externality

answer

Something that helps one individual or group but hurts everyone else

Ex: pollution, someone eating chips too loudly

question

The Tragedy of the Commons

answer

-when a resource is unowned or owned in common, it is often overused or abused; solutions can include switching to private property and quotas

-Example: fisheries or a common pasture

question

The Tragedy of the Anticommons

answer

- too many people have property rights, or the right to say "no," so the resource doesn't get used

-Example: Russian mafia regulating shopping malls, patent trolls

question

Information Problems

answer

-when consumers cannot obtain all useful info so some trades do not occur

-Examples: used car sales overdramatic

question

public choice

answer

rationally self-invested individuals; actions determined by their preferences and the incentives created by the system of laws and norms

question

Public interest

answer

the government translates the people's preferences into effective policy action

question

Rational ignorance

answer

people choose ignorance because becoming informed is costly with low benefits

question

Rational abstention

answer

people choose not to vote because it is costly with low benefits

question

Bureaucrats

answer

want a bigger budget to expand agencies; persuade politicians to prove it

question

The Special Interest Effect

answer

inefficient policy can persist because concentrated groups beat widespread groups

question

Stocks

answer

amount or the water already in the "tub"

question

Flows

answer

changes over time; water flowing into the "tub"

question

GDP

answer

-gross domestic product

o Market value of all final goods and services produced within a country within a year
o Does not show who produced something or what was produced

question

Final Good

answer

it has reached the last person who buys it as a new product i.e. a sandwich

question

Intermediate Good

answer

Goods used to make Final goods

ex: memory foam used to make mattresses

question

Income approach for GDP

answer

Adding up everyones Income

question

Expenditure approach for GDP

answer

- add up spending

-Y = C + I + G + NX

-GDP = Consumption + investment + government + (net exports - net imports)

question

Per Capita GDP

answer

(GDP/Population)

question

Problems with GDP

answer

question

Price level

answer

a measure of the prices of goods and services

question

Inflation

answer

an increase in the price level; a flow

question

Disinflation

answer

a decrease in the inflation rate; flow of a flow

question

Deflation

answer

a decrease in the price level; a flow

question

Nominal GDP

answer

measured in contemporaneous prices (SAME time)

question

Real Gdp

answer

GDP measured using a BASE YEAR price

question

When GDP Decreases Price Level..

answer

price level decreases and vise versa

question

GDP Deflator

answer

(Nominal GDP/Real GDP) * 100

question

CPI

answer

question

Calculating Inflation percentage

answer

o (Xnew - Xold)/(Xold) * 100
Example: 200 last yr, 206 this yr
(206-200)/200 100 = 6/200 100 = 3%

question

Adjusting a nominal figure for inflation

answer

question

employed

answer

work for pay, worked without pay in fam business, temporarily laid off from your current job

question

unemployed

answer

don't have a job and are available to work, have looked for work in the past four weeks

question

Labor Force Participation Rate equation

answer

(labor force/non-institutionalized adult civilian population) * 100 = __%

question

Unemployment Rate equation

answer

(unemployed/labor force) * 100 = __%

question

Frictional Unemployment

answer

ordinary search (can be affected by labor market policies)

question

Structural Unemployment

answer

can't find jobs because they're skills don't match

question

Seasonal Unemployment

answer

rise and falls predictably with seasons

question

Cyclical

answer

occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. In an economy, demand for most goods falls, less production is needed

question

Natural Rate of Unemployment

answer

-Frictional + Structural
The unemployment rate when the economy is growing at a natural rate

question

Full Employment

answer

The rate of employment when the unemployment rate is at its natural rate

question

Potential GDP

answer

Value of output when unemployment is at its natural rate

question

Menu Costs

answer

The costs of updating Prices

Ex: Having Publix workers update all of the food every time price changes

question

Shoe leather Costs

answer

the cost of frequent and frantic trips to the bank

Ex. Don't want to lose interest

question

Loanable Funds Market

answer

theory of the market interest rate. According to this approach, the interest rate is determined by the demand for and supply of loanable funds

question

Fisher's Equation

answer

Difference between the nominal interest rate and the real interest rate

i = r + pi (3.14)

question

Foreign Exchange Market

answer

question

Appreciation

answer

when the value of the dollar rises (or it buys more currency)/ the dollar is stronger

question

Depreciation

answer

when the value of the dollar falls (or it buys less foreign currency)/ the dollar is weaker

question

3 Uses of Money

answer

o Medium of exchange- avoids "double coincidence of wants" problem
o Unit of account- you can do accounting
o Store of Value

question

Liquidity

answer

an asset is liquid if it is close to cash

question

Fiat Money

answer

Has value by order of the government

question

Commodity money

answer

Has value because it is a commodity or backed by one

question

Money Multiplier

answer

1/reserve requirment

question

Reserve Requirement

answer

Amount banks are required to keep in reserves

Reserve Requirement goes up money supply goes down

question

Open Market Operations

answer

if the Fed buys treasury bills from banks, money supply with rise

If fed sells treasury bills from banks, money supply will fall

question

Discount Rate

answer

Interest rate the fed charges banks

Lowering this increases money supply

question

Equation of Exchange

answer

Stocks Version:
Money supply Velocity = Price level GDP real"
Ex. 2 V = 198 2 ... so V = 198

Flow Version:
%change M + %change V = %change P + %change Y
Ex. US economy: 5% + 0% = 2% + 3%

question

Rule of 70

answer

if something is growing at x% per year, it will double in 70/x years

Example: growing at 2% per year, how long will it take to double? ... = 35 years or 70/2

question

Why do economies grow?

answer

question

Comparative Advantage

answer

the ability to produce a good at the lowest opportunity cost

question

What do tariffs and quotas do to total surplus?

answer

Reduce total surplus

question

Petition of Candlemakers

answer

forcing people to pay for something when a free alternative is available is often a waste of resources.

question

Dumping

answer

Is bad. Foreign markets will come in with lower prices than domestic prices only to raise them later

question

Dynamic Aggregate Demand

answer

economic measurement of the sum of all final goods and services produced in an economy, expressed as the total amount of money exchanged for those goods and services.

question

Slow Growth Curve

answer

depicts the economy's long run growth rate; there is no relationship between inflation and economic growth; the SGC is a vertical, straight line

question

Short Run Aggregate Supply

answer

Dictated by both price and production

question

Factors which shift each of these curves

answer

question

Iowa Car crop

answer

if we tax the cars imported from japan, we are hurting Iowa farm who are growing wheat and trading the wheat for cars

question

What happens if %∆𝑀 rises or falls?

answer

o Rises= growth goes up then returns to its long term and inflation goes up
o Falls= growth fell than rose to its long term rate and inflation fell

question

What happens if %∆𝑉 rises or falls?

answer

o Rises = growth rises than falls, inflation rises and then falls
o Falls = growth falls then rises, inflation falls then rises

question

What happens if there is a supply shock?

answer

question

Fiscal Policy

answer

the use of government spending and taxes, which change velocity growth, shifting Aggregate Demand

Government cuts taxes and creates spending to shift the aggregate demand curve to the right

question

The Keynesian Multiplier

answer

1 / (1−𝑀𝑃𝐶)
o Example: 1 / (1- 0.9) = 1 / 0.1 = 10

question

Monetary Policy

answer

the Fed can use its tools to speed up or slow down money supply growth, shifting AD

When the fed changes money supply this changes the amount of money banks can lend out, this changes spending

question

Crowding out

answer

more borrowing drives up interest rates which crowds out private borrowing

question

Ricardian equivalence

answer

if people anticipate that current borrowing means future taxes they might not spend ... this is ineffective

question

Lags

answer

takes time to recognize problems, Congress to act, implement a policy, economy to respond

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