2013 Final Flashcards
What is Macroeconomics?
the study of aggregate economic behavior of the economy as a whole
The ‘big picture’, things such as full employment, control of inflation, and economic growth
Doesn’t worry about the well-being or behavior of specific individuals or groups
What is business cycle?
Alternating periods of economic growth
and contraction with recoveries in between.
What is laissez faire?
the doctrine of “leave it alone”, nonintervention by government in the market mechanism?
What is Say’s Law?
Supply creates its own demand.
What is Real GDP?
The value of final output produced in a given period, adjusted for changing prices.
Formula: Nominal GDP x [GDP Deflator # base year(2009)/GDP Deflator year x #]
What is a Recession?
A decline in total output (real GDP) for two or
more consecutive quarters.
The National Buerau of Economic Research(NBER) however defines a recession by the period between a peak and a trough in a business cycle.
What is a Growth Recession?
a period during which real GDP grows,
but at a rate below the long-term trend of 3 percent(0-2%). Can include jobless recovery.
What is Aggregate Demand?
The total quantity of output (real GDP) demanded at alternative price levels in a given time period, ceteris paribus.
What is Aggregate Supply?
The total quantity of output (real GDP) producers are willing and able to supply at alternative price levels in a given time period, ceteris paribus.
What is (Macro) Equilibrium?
The combination of price level and real output that is compatible with both aggregate demand and aggregate supply.
Name the 4 government policies outside of Laissez-faire Government can use to alter end a recession.
- Fiscal Policy 2. Monetary Policy 3. Trade Policy 4. Supply-Side Policy
What is Fiscal Policy?
The use of government spending and cutting taxes to help macroeconomic outcomes.
What is Monetary Policy?
The use of money and credit controls such as lowering interest rates to help macroeconomic outcomes.
What is Trade Policy?
A reduction in trade barriers makes imports cheaper and more available to help macroeconomic outcomes.
What is Supply-Side Policy?
The use of tax incentives, (de)regulation,
and other mechanisms to increase the ability and willingness to produce goods and services.
How BAD was the Great Depression in America during the 1930s?
$40 billion of wealth had vanished in the Great Crash, By 1933 over one-fourth of the labor force was unable to find work.
What are the three questions that Economists have tried to answer since the Great Depression?
- How stable is a market-driven economy? 2. What forces cause instability? 3. What, if anything, can the government do to promote steady economic growth?
Describe economic conditions in America during the 1980s.
1980s started with two recessions, the second lasting 16 months (July 1981–November 1982). Despite that real GDP actually increased by 1.8 in 1981. In Nov. 1982 the U.S. economy began an economic expansion that lasted over seven years. During that period, real GDP increased by over $1 trillion, and nearly 20 million new jobs were created.
What are the five basic macro outcomes(measures of macroeconomic performance)?
- Output: total value of goods and services produced (real GDP).
- Jobs: levels of employment and unemployment.
- Prices: average price of goods and services (inflation).
- Growth: year-to-year expansion in production capacity.
- International balances: international value of the dollar; trade and payment balances with other countries.
What are the three determinants of macro performance?
- Internal market forces: population growth, spending behavior, invention and innovation, and the like.
- External shocks: wars, natural disasters, terrorist attacks, trade disruptions, etc.
- Policy levers: tax policy, government spending, changes in the availability of money, and regulation for example.
What is the crucial macro controversy in America today
The crucial macro controversy is whether pure, market-driven economies are inherently stable or unstable.
What are the 3 Aggregate Demand reasons that explain the downward slope of the aggregate demand curve?
- The real balances effect. 2. The foreign trade effect. 3. The interest rate effect.
The AD Real Balances Effect claims that when average prices rise, buyers choose to purchase a smaller quantity of domestic-produced output. Explain.
Cheaper prices make dollars more valuable. if the price level rose then your $1,000 won’t stretch as far. The real value of money is measured by how many goods and services each dollar will buy.
The AD Foreign-Trade Effect claims that when average prices rise, buyers choose to purchase a smaller quantity of domestic-produced output. Explain .
If the average price of U.S.-produced goods is rising, Americans may buy more imported goods and fewer domestically produced products. International consumers are also swayed by relative price levels. When U.S. price levels decline, overseas tourists flock to Disney World. Global consumers also buy more U.S. wheat, airplanes, and computers when our price levels decline.