Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Macroeconomics > Aggregate Demand and Aggregate Supply > Flashcards

Aggregate Demand and Aggregate Supply Flashcards

1
Q

Economic Activity fluctuates from year to year:

What happens in most years?

A

production of goods and services rises

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

FACT 1: Economic Fluctuations

A

Economic fluctuations are irregular and unpredictable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

FACT 2:Economic Fluctuations

A

Most macroeconomic quantities fluctuate together

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

FACT 3: Economic Fluctuations

A

As output falls, unemployment rises

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What part of real GDP fluctuates most over the course of the business cycle?

A

Investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Recessions

A

periods of falling real incomes and rising unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Depressions

A

severe recessions

very rare

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Most economists use what to study fluctuations?

A

model of aggregate demand and aggregate supply

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the model of aggregate demand and aggregate supply used to explain?

A

the short run

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the two groups that the Classical Dichotomy splits into?

A

Real: quantities, relative prices
Nominal: Measured in terms of money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

The neutrality of money

A

changes in the money supply affect nominal but not real variables

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What do most economists believe

A

That eh classical theory describes the world in the long run, but not the short run

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

A shift in the Supply curve to the left

A

Stagflation: Shows recession: but the prices went up, therefore inflation went up
The worst kind of recession

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

A shift in the Demand Curve to the left

A

Shows recession

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

An economic boom is shown by:

A

A shift to the right in both or either Supply and or Demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What does the AD curve show?

A

the quantity of all g& s demanded in the economy at any given price level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

The wealth effect (P and C)

Suppose P rises:

A

The dollars people hold buy fewer g&s (decrease value of money)

people feel poorer:
C falls( spending falls)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

The Interest-Rate Effect (P and I)

Suppose P rises:

A

Buying g&s requires more dollars
to get these dollars people sell bonds or other assets

This drives up interest rates

“I” falls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What happens to NX with an increase in P

A

increases demand for U.S dollars by foreigners, appreciates the dollar and reduces NX

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

An increase in P reduces the quantity of G&S demanded because

A 
The wealth effect
(C falls) 
The interest rate effect
(I falls)
exchange rate effect
(NX falls)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Why the AD curve might shift

A

Any event that changes
C, I, G, or NX
EXCPET a change in P

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Changes in C

A
  • Stock Market boom/crash
  • Preferences: such as consumption/ saving tradeoff
  • Tax hikes/ cuts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Changes in I

A
  • Firms buy new computers, equipment, factories
  • Expectations, optimism/pessimism • Interest rates, monetary policy
  • Investment Tax Credit or other tax incentives.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Changes in G

A
  • Federal spending, e.g. defense

* State & local spending, e.g. roads, schools

25
Q

Changes in NX

A

• Booms/recessions in countries that buy our

exports.

26
Q

Suppose the demand for exports falls as a result of recession overseas. in the short run, the economy will likely experience

A

A decrease in the output (GDP)

27
Q

What does the AS curve show

A

The total quantity of g&s firms produce and sell at any given level

28
Q

The long-run aggregate supply curve (LRAS)

The natural rate of output (Yn) is

A

the amount of output the economy produces when unemployment is at its natural rate

29
Q

Yn is also called

A

Potential output
or
full-employment output

30
Q

Why is LRAS a vertical line… What is Yn determined by?

A

the economy’s stocks of labor, capital, and natural resources, and on the level of technology

31
Q

An increase in P

A

does not affect any of the factors that Yn is determined by, therefore does not affect Yn; classical dichotomy

32
Q

What causes the LRAS curve to shift?

A

Changes in L or natural rate of unemployment

Changes in K or H

Changes in Natural Resources

Changes in Technology

33
Q

Shifts in LRAS: Changes in L or natural rate of unemployment

A
  • Immigration

* Baby-boomers retire • Govt policies reduce natural u-rate

34
Q

Shifts in LRAS:

Changes in K or H

A
  • Investment in factories, equipment
  • More people get college degrees
  • Factories destroyed by a hurricane.
35
Q

Shifts in LRAS: Changes in Natural Resources

A

• discovery of new mineral deposits
• reduction in supply of imported oil
• changing weather patterns that affect
agricultural production

36
Q

Shifts in LRAS: Changes in technology

A

• productivity improvements from technological

progress.

37
Q

If AS is vertical;

A

fluctuations in AD do not cause fluctuations in output or employment

38
Q

If AS slopes up;

A

then shifts in AD do affect output and employment

39
Q

Expansionary Monetary Policy

A

Shifts AD to the right; up

Done by the FED

40
Q

Contractionary Monetary Policy

A

Shifts AD to the left; down

41
Q

The Short Run Aggregate Supply

A

upward sloping;

over the period of 1-2 years, an increase in P causes an increase in the quantity of g&s supplied

42
Q

Fiscal Policy

A

Change in G and or Tax done by the president (government)

43
Q

What is the shape of Aggregate Supply in the long run?

A

Vertical

44
Q

What is the shape of the Aggregate Supply in the short run?

A

Upward slope

45
Q

What is the shape of the Aggregate Demand in the short run or long run?

A

Downward slope

46
Q

The long-run Equilibrium

A 
PE= P
Y= Yn
unemployment is at its natural rate 
PE= Expected Price
Yn= Potential level of GDP
47
Q

Economic Fluctuations

A

Caused by events that shift the AD and or AS curves

48
Q

Four Steps to analyzing economic fluctuations

A
  1. Determine whether the event shifts AD or AS
  2. Determine whether curve shifts left or right
  3. Use AD-AS diagram to see how the shift
    changes Y and P in the short run 4. Use AD-AS diagram to see how economy
    moves from new SR eq’m to new LR eq’m.
49
Q

Suppose a stock market crash makes people feel poorer. In the AD-AS model this would shift

A

Aggregate Demand to the left

50
Q

The economic boom of the early 1940s resulted mostly from

A

increased government expenditures

51
Q

During the 2008-2009 Recession unemployment rose from about 4.4% to about

A

10.1%

52
Q

What played a major role in the 2008-2009 recession

A

the housing market

53
Q

During the Recession of 2008-2009 how much did the GDP fall?

A

about 4%

54
Q

Rising house prices during 2002-2006 is due to:

A

Low interest rates
easier credit for “sub-prime” borrowers
government policies to increase homeownership
securitization of mortgages

55
Q

The recession of 2008-2009 could have been the result of

A

Losses in the financial market which caused AD to shift to the left

56
Q

The Effects of a Shift in SRAS

Event: Oil Prices Rise

A
  1. Increase in costs shifts the SRAS (assuming that LRAS is constant)
  2. SRAS shifts left
  3. SR equilibrium at the new point is higher, Y is lower, unemployment is higher
57
Q

The Effects of a Shift in SRAS
Event: Oil Prices Rise
If policy makers do nothing

A

Low employment causes wages to fall, SRAS shifts right until LR equilibrium back to point “A”

58
Q

Which of the following causes the short run aggregate supply curve to shift left?

A

an increase in the price of oil

59
Q

How do economists analyze fluctuations?

A

using the model of aggregate demand and aggregate supply

Macroeconomics (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions