question
What will happen to consumption and savings when output increases?
answer
both increase
question
What will happen to consumption and savings when the expected future output increases?
answer
C increases; S decreases
question
What will happen to consumption and savings when wealth increases?
answer
C increases, S Decreases
question
What will happen to consumption and savings when there is an increase in the expected real interest rate? (sub effect dominates)
answer
C decreases; S increases
question
What will happen to consumption and savings when there is an increase in the expected real interest rate? (inc effect dominates - saver)
answer
C increases, S decreases
question
What will happen to consumption and savings when there is an increase in the expected real interest rate? (inc effect dominates - borrower)
answer
C decreases; S increases
question
What will happen to consumption and savings when there is an increase in government purchases?
answer
C decreases, S increases
question
What will happen to consumption and savings when there is an increase in taxes? (Ricardian Equivalence Holds)
answer
Nothing to either
question
What will happen to consumption and savings when there is an increase in taxes? (Ricardian Equivalence doesn't Hold)
answer
C decreases; S increases
question
What happens to labor demand curve when there is increased productivity?
answer
shift right
question
What happens to labor demand curve when there is decrease in capital stock?
answer
shift left
question
What happens to Labor Supply curve when there is an increase in wealth?
answer
Shift left
question
What happens to Labor Supply curve when there is an increase in expected future real wage?
answer
shift left
question
What happens to Labor Supply curve when there is an increase in the working age population?
answer
shift right
question
What happens to Labor Supply curve when there is an increase in labor force participation?
answer
shift right
question
What happens to both labor demand or supply when current wage increases or decreases?
answer
neither shift
question
What happens to the savings demand curve when there is an increase in current output?
answer
shift right
question
What happens to the savings demand curve when there is an increase in expected future output?
answer
shift left
question
What happens to the savings demand curve when there is an increase in wealth?
answer
shift left
question
What happens to the savings demand curve when there is an increase in government purchases?
answer
shift left
question
What happens to the savings demand curve when there is an increase in taxes (RE holds)?
answer
none
question
What happens to the savings demand curve when there is an increase in taxes (RE doesn't hold)?
answer
shift right
question
What happens to the investment curve when there is an increase in the effective tax rate?
answer
shift left
question
What happens to the investment curve when there is an increase in expected future MPK?
answer
shift right
question
What happens to money demand when there is an increase in price level? (P)
answer
demand increases
question
What happens to money demand when there is an increase in real income/output? (Y)
answer
demand increases
question
What happens to money demand when there is an increase in real interest rate of alternative assets? (r)
answer
demand decreases
question
What happens to money demand when there is an increase in expected inflation rate? (expected pi)
answer
demand decreases
question
What happens to money demand when there is an increase in the nominal interest rate of money? (i)
answer
demand increases
question
What happens to money demand when there is an increase in wealth?
answer
demand increases
question
What happens to money demand when there is an increase in the risk of alternative assets?
answer
demand increases
question
What happens to money demand when there is an increase in the risk of money?
answer
demand decreases
question
What happens to money demand when there is an increase in the liquidity of alternative assets?
answer
demand decreases
question
What happens to money demand when there is an increase in the efficiency of payment technologies?
answer
demand decreases
question
What happens to the monetary base, money multiplier, and money supply when there is an increase in the reserve deposit ratio?
answer
monetary base: unchanged
money multiplier: decrease
money supply: decrease
money multiplier: decrease
money supply: decrease
question
What happens to the monetary base, money multiplier, and money supply when there is an increase in the currency-deposit ratio?
answer
monetary base: unchanged
money multiplier: decrease
money supply: decrease
money multiplier: decrease
money supply: decrease
question
What happens to the monetary base, money multiplier, and money supply when there is an open-market purchase
answer
monetary base: increase
money multiplier: unchanged
money supply: increase
money multiplier: unchanged
money supply: increase
question
What happens to the monetary base, money multiplier, and money supply when there is an increase in reserve requirements?
answer
monetary base: unchanged
money multiplier: decrease
money supply: decrease
money multiplier: decrease
money supply: decrease
question
What happens to the monetary base, money multiplier, and money supply when there is an increase in discount window borrowing?
answer
monetary base: increase
money multiplier: unchanged
money supply: increase
money multiplier: unchanged
money supply: increase
question
What happens to the monetary base, money multiplier, and money supply when there is an increase in the discount rate
answer
monetary base: decrease
money multiplier: unchanged
money supply: decrease
money multiplier: unchanged
money supply: decrease
question
What happens to the monetary base, money multiplier, and money supply when there is an increase in the interest rate paid on reserves
answer
monetary base: unchanged
money multiplier: decrease
money supply: decrease
money multiplier: decrease
money supply: decrease
question
How does lowering money supply affect the Federal funds rate?
answer
it increases the fed funds rate
question
What are examples of unconventional monetary policy?
answer
Forward guidance, Quantitative Easing (purchase long term treasuries or purchase risky assets like mortgage-backed securities), lowering long-term riskless yields, lowering short term risky yields
question
How does an increase in future output affect the IS curve?
answer
up and to the right
question
How does an increase in wealth affect the IS curve?
answer
up and to the right
question
How does an increase in government expenditure affect the IS curve?
answer
up and to the right
question
How does an increase in current taxes affect the IS curve? RE Holds
answer
no change
question
How does an increase in current taxes affect the IS curve? RE doesn't hold
answer
up and to the right
question
How does an increase in the expected future marginal productivity of capital affect the IS curve?
answer
up and to the right
question
How does an increase in the effective tax rate on capital affect the IS curve?
answer
down and to the left
question
How does an increase in nominal money supply (M) affect the LM curve?
answer
down and to the right
question
How does an increase in price level (P) affect the LM curve?
answer
up and to the left
question
How does an increase in expected inflation affect the LM curve?
answer
down and to the right
question
How does an increase in wealth affect the LM curve?
answer
up and to the left
question
How does an increase in the relative risk of alternative assets affect the LM curve?
answer
up and to the left
question
How does an increase in the liquidity of alternative assets affect the LM curve?
answer
down and to the right
question
How does an increase in the efficiency of alternative assets affect the LM curve?
answer
down and to the right
question
How does a negative shock in the productivity assets affect the FE curve?
answer
left
question
How does an increase in labor supply affect the FE curve?
answer
right
question
How does an increase in capital stock affect the FE curve?
answer
right
question
Under RBC, employment's cyclicality is
answer
pro-cyclical
question
Under RBC, real wage's cyclicality is
answer
pro-cyclical
question
Under RBC, labor productivity's cyclicality is
answer
pro-cyclical
question
Under RBC, inflation's cyclicality is
answer
counter-cyclical
question
Under RBC, unemployment's cyclicality is
answer
a-cyclical
question
Under Keynesian, employment's cyclicality is
answer
pro-cyclical
question
Under Keynesian, real wage's cyclicality is
answer
pro-cyclical
question
Under Keynesian, labor productivity's cyclicality is
answer
counter-cyclical
question
Under Keynesian, inflation's cyclicality is
answer
pro-cyclical
question
Under Keynesian, unemployment's cyclicality is
answer
counter-cyclical
question
Under RBC, is monetary policy neutral?
answer
yes
question
Under Keynesian, is monetary policy neutral?
answer
no, in the short run, it can affect real variables
question
Under RBC, is fiscal policy neutral?
answer
no, it can have a small impact on output through the FE curve
question
Under Keynesian, is fiscal policy neutral?
answer
No, it can have a large impact on output through the IS curve in the short run
question
How do prices adjust in Keynesian?
answer
they are slow/sticky to readjust
question
How do prices adjust in RBC?
answer
immediately
question
What equation does PPP imply?
answer
exchange rate nominal = price of a foreign good/price of domestic good
question
Equation for the real exchange rate
answer
e = (nominal e * P domestic)/(P foreign)
question
Percentage change in real exchange rate
answer
change in e/e = (change in nominal e - nominal e) + domestic inflation - foreign exchange rate
question
How does an increase in domestic output affect the real exchange rate?
answer
fall
question
How does a decrease in foreign output affect the real exchange rate?
answer
fall
question
How does an increase in the domestic real interest rate affect the real exchange rate?
answer
rise
question
How does an increase in foreign real interest rate affect the real exchange rate?
answer
fall
question
How does a decrease in world demand for domestic goods affect the real exchange rate?
answer
fall
question
How does an increase in domestic output affect the NX curve?
answer
left and down
question
How does an increase in foreign output affect the NX curve?
answer
right and up
question
How does an increase in foreign real interest rate affect the NX curve?
answer
right and up
question
How does an increase in the world demand for domestic goods affect the NX curve?
answer
right and up
question
How does an increase in domestic output affect the NX?
answer
fall
question
How does an increase in foreign output affect the NX?
answer
rise
question
How does an increase in the domestic real interest rate affect the NX?
answer
fall
question
How does an increase in world demand for domestic goods affect the NX?
answer
rise
question
How does an increase in the foreign real interest rate affect the NX?
answer
rise
question
Open Economy: How does an increase in the foreign output affect the IS curve?
answer
right and up
question
Open Economy: How does an increase in the foreign real interest rate affect the IS curve?
answer
right and up
question
Open Economy: How does an increase in the world demand for domestic goods affect the IS curve?
answer
right and up
question
Open Economy: How does an increase in the domestic output affect the real exchange rate?
answer
fall
question
Open Economy: How does an increase in the domestic real interest rate affect the real exchange rate?
answer
rise
question
Open Economy: How does an increase in the domestic output affect net exports?
answer
fall
question
Open Economy: How does an increase in the domestic real interest rate affect net exports?
answer
fall
question
unemployment rate
answer
unemployed/labor force
question
Participation Rate
answer
labor force / population 16+
question
employment ratio
answer
employed/population 16+
question
cyclical unemployment
answer
individuals who want to work and have the necessary skills, but cannot find a job
question
structural unemployment
answer
mismatch between workers' skills and firms' requirments
question
frictional unemployment
answer
matching between workers and firms take time
question
natural rate of umemployment
answer
when the only individuals unemployed are due to structural or frictional unemployment
question
Okun's Law
answer
a 1% increase in unemployment results in a 2% decrease in GDP
question
user cost of capital
answer
UC=(r+d)Pk
question
Tobin's q
answer
V/K*price of capital; if V/K> price of capital, a firm should invest
question
Taylor's Rule Equation
answer
i = pi + .02 + 0.5y + 0.5(pi-.02); y = % difference between actual employment and full employment output
question
What are unconventional ways to stimulate demand?
answer
lower long term riskless yields, lower short term risky yields
question
forward guidance
answer
communication by the central bank about future policy prospects
question
quantitative easing
answer
the purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand
question
the Phillips curve
answer
tradeoff between unemployment and inflation; downward sloping; inflation on y axis, unemployment on x-axis
question
expectations-augmented Phillips curve
answer
inflation = expected inflation - h(u - u(bar))
question
According to expectations-augmented phillips curve, if expected inflation is 5%, and actual inflation is 5%, then unemployment should
answer
not necessarily be higher or lower
question
According to expectations-augmented phillips curve, if expected inflation is 5%, and actual inflation is 7%, then unemployment should
answer
expect to see low unemployment rate
question
According to expectations-augmented phillips curve, if expected inflation is 5%, and actual inflation is 3%, then unemployment should
answer
expect to see high unemployment rate
question
money multiplier
answer
cu+1/cu+res or CU + DEP/ CU + RES
question
RES
answer
federal res + vaults
question
DEP
answer
total deposit
question
currency in circulation
answer
CU + vault
question
intensive margin
answer
changes in the number of hours worked
question
extensive margin
answer
changes in the number of workers
question
PCE
answer
personal consumption expenditure
question
core PCE
answer
The Personal Consumption Expenditures deflator that has the impact of food and energy costs removed.
question
CPI
answer
(consumer price index) a measure of the overall cost of the goods and services bought by a typical consumer
question
GDP deflator
answer
a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
question
Okun's Law has to do with which kind of employment
answer
cyclical
question
GDP
answer
Gross Domestic Product- the total market value of all final goods and services produced annually in an economy - physically in the country
question
GNP
answer
Gross National Product - the sum of all goods and services produced in a nation in a year - not physically in the country
question
What will happen to consumption and savings when an individual receives a bonus?
answer
C will increase and S will increase
question
What does an inverted yield curve imply?
answer
the market expects future interest rates to decline
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