question
What is microeconomics?
answer
the study of individual decision making by firms and individuals
question
What is macroeconomics?
answer
the study of aggregate behavior, including unemployment, inflation, recessions, and other economy wide phenomenon
question
What are the Three main concerns of Macroeconomics?
answer
1)Inflation
2)Unemployment
3)Output Growth
2)Unemployment
3)Output Growth
question
What is a recession?
answer
a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
question
What is a boom?
answer
a period of fast economic growth
question
What is Aggregate Output?
answer
The total level of new production of goods and services from an economy.
question
What is Output Growth?
answer
refers to increases in Aggregate Output from the previous period
question
What is GDP?
answer
Gross Domestic Product= the total value of all new goods and services produced within the countries borders in a given time.
question
What is GNP?
answer
Gross National Product- total production of new goods and services by a country's citizens within a time period.
question
How does high inflation hurt the economy?
answer
it decreases the purchasing power of money in the economy and limits what can be purchased with said currency.
question
What happens when inflation is higher?
answer
Cost of living goes up, and purchasing power goes down.
question
What happens when inflation is lower?
answer
Cost of living goes down, and purchasing power goes up.
question
What is CPI?
answer
(consumer price index) a measure of the overall cost of the goods and services bought by a typical consumer
question
How is CPI calculated?
answer
1. Fix the basket
2. Find the prices
3. Compute the basket's cost
4. Choose a base year and compute the index
5. Compute the inflation rate
2. Find the prices
3. Compute the basket's cost
4. Choose a base year and compute the index
5. Compute the inflation rate
question
What is the focus of supply side policies?
answer
seek to increase the rate that capital or technology increases to yield greater labor productivity
question
What are the characteristics of a consumption function?
answer
consumption function, in economics, the relationship between consumer spending and the various factors determining it. At the household or family level, these factors may include income, wealth, expectations about the level and riskiness of future income or wealth, interest rates, age, education, and family size.
question
What is the Autonomous Level of Spending?
answer
An autonomous expenditure describes the components of an economy's aggregate expenditure that are not impacted by that same economy's real level of income.
question
The Marginal Propensity to Consume?
answer
MPC - the portion of additional income that is spent on consumption
question
What is the Total Income equation?
answer
Your total income is your gross income from all sources less certain deductions, such as expenses, allowances, and reliefs. (Total revenue - total expenses = Net Income)
question
How do you find household savings?
answer
(Income - spending / income) x 100
question
What is the marginal propensity to save?
answer
MPS is the fraction of any change in income (real disposable income or GDP) that households save
question
What is planned investment?
answer
The amounts that business firms collectively intend to invest at each level of GDP.
question
Why is planned investment referred to as "planned"?
answer
because it is spending on capital goods that businesses plan to make regardless of their current level of income.
question
What is Planned aggregate expenditure?
answer
the sum of planned consumption expenditures (C), planned investment expenditures (I), planned government expenditures (G) and planned net exports (NX):
question
What is the significance of a 45 degree line when graphed with Total output on the horizontal axis?
answer
The 45-degree line shows all points where aggregate expenditures and output are equal.
question
What is the equilibrium level of output?
answer
Output is at its equilibrium when quantity of output produced (AS) is equal to quantity demanded (AD).
question
What is fiscal policy?
answer
government adjusts its spending levels and tax rates to monitor and influence a nation's economy
question
Who sets fiscal policy?
answer
Congress and the President
question
What is disposable income?
answer
income remaining after deduction of taxes and other mandatory charges, available to be spent or saved as one wishes.
question
What is a budget deficit?
answer
that is when a government spends more than they collect in taxes for a certain time period.
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What is a budget surplus?
answer
the government spent less than the amount of taxes they collected.
question
What is the government debt?
answer
the accumulation of past government borrowing
question
What is the tax multiplier?
answer
-MPC/(1-MPC)
question
Why is the tax multiplier smaller than the spending multiplier
answer
he entire government spending increase goes towards increasing aggregate demand, but only a portion of the increased disposable income (resulting for lower taxes) is consumed.
question
What are automatic stabilizers?
answer
government spending and taxes that automatically increase or decrease along with the business cycle
question
What is a cyclical deficit?
answer
the deficit that occurs because of a downturn in the business cycle
question
What is a structural deficit?
answer
This is a deficit which is due to an imbalance in the revenue and expenditure of the
government, so it exists at every point in the business cycle.
government, so it exists at every point in the business cycle.
question
What is the "full employment" level of output?
answer
The output at the point at which the unemployment is the same as the natural rate of unemployment. THEORITCAL.
Or the level of output (real GDP), where there is no recessionary or deflationary gap.
Or the level of output (real GDP), where there is no recessionary or deflationary gap.
question
What roles does the Federal Reserve Play?
answer
1) Maintain and Regulate Private Banks - Lender of Last Resort
2)Manage the Money supply
2)Manage the Money supply
question
What is the FOMC?
answer
Federal Open Market Committee- Manages the money supply
question
Who makes up the FOMC?
answer
the 7 members of the board of governors and 5 district FED bank presidents. 12 total members
question
What happens when the Federal Reserve Purchases T-Bills?
answer
Hopefully increase price decrease supply
question
What happens when the federal reserve sells T-bills?
answer
Lower prices and increased supply
question
How does expansionary monetary policy work?
answer
by expanding the money supply faster than usual or lowering short-term interest rates.
question
How does contractionary monetary policy work?
answer
Contractionary monetary policy is driven by increases in the various base interest rates controlled by modern central banks or other means producing growth in the money supply.
question
How does expansionary fiscal policy increase output?
answer
when the government increases the money supply in the economy using budgetary instruments to either raise spending or cut taxes—
question
How does contractionary fiscal policy decrease output?
answer
decrease the money supply and aggregate demand,
question
Why is SRAS upward sloping?
answer
1. contracts make some wages and prices "sticky"
2. firms are often slow to adjust wages
3. menu costs make some prices sticky
2. firms are often slow to adjust wages
3. menu costs make some prices sticky
question
Why is aggregate demand downward sloping?
answer
wealth effect, interest rate effect, international trade effect
question
Why is LRAS vertical?
answer
Vertical because the price level will not impact the productive capacity of the economy in the long run
question
What is potential GDP?
answer
It is the level of real GDP in the long run.
question
How does monetary policy affect the AD/AS Graph?
answer
The decrease in the money supply will lead to a decrease in consumer spending
The increase in the money supply will lead to an increase in consumer spending
The increase in the money supply will lead to an increase in consumer spending
question
Why are wages sticky?
answer
1) minimum wage laws
2) unemployment insurance and other social programs
3) labor union resistance to wage cuts
4) labor contracts
5) wage cuts negatively affect morale
2) unemployment insurance and other social programs
3) labor union resistance to wage cuts
4) labor contracts
5) wage cuts negatively affect morale
question
What does the short-run Phillips curve show?
answer
the inverse relationship between inflation and unemployment
question
What is represented on the vertical axis of the Phillips curve?
answer
The natural rate of unemployment
question
What is represented on the horizontal axis of the phillips curve?
answer
Inflation rate
question
What causes the phillips curve to shift?
answer
Inflationary expectations
question
How does the Fed Fight inflation?
answer
reduce money supply;
causes short term interest rates to grow
causes short term interest rates to grow
question
What does the long run phillips curve show?
answer
inflation and unemployment are unrelated
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