Allt

Question 1

Technological progress gives

Answer 1

Larger quantities

Better products

New products

Larger variety

Question 2

State of technology

Answer 2

A variable to tell us how much output that can be produced

Question 3

Okuns law

Answer 3

Higher output growth leads to à decrease in unemployment

Question 4

Phillips curve

Answer 4

Unemployment and change in rate of inflation

Question 5

Vad avgör demand for Money?

Answer 5

Level of transaction

Interest rate

Md = Y L(i)

Question 6

Higher interest rate = … ?

Answer 6

More money in the bank. Why?

Question 7

Investments depends on 2 factors; which?

Answer 7

1. Lvl of sales. À firm facing increased sales Will have to increase production. Like buying new machines = investing
2. Interest rate. To invest in ex. Machines firas have to borrow money. High interest rate makes it undesirable to take loans.

Question 8

Determining output

Y= … ?

Answer 8

Y = C (Y - T) + I (Y, i) + G

Question 9

Shifts in the IS-curve

Answer 9

Changes in T or G

Any change that will increase or decrease the demand for goods.

Question 10

Multipliereffect

Answer 10

New demand in the circular flow. An increase in output leads to an increase in income and thus to an increase in disposable income. The increase in disposable income leads to an increase in consumption.

It also leads to an increase in investments.

Question 11

Why is the is-curve downwards sloping?

Answer 11

Because the higher the interest rate the less people want to invest. Decrease in investments leads to a decrease in output, which further decrease consumption and investments.

Question 12

Why is LM-curve upwards sloping?

Answer 12

Because an increase in income, at any given interest rate, leads to an increase in money demand.

Given the money supply left untouched this increase in money demands leads to an increase in the interest rate.

Question 13

Equilibrium in MEDIUM RUN

Answer 13

Y eventually goes back to Yn.

Vilket sker genom en process av justeringar I förändringar i prisnivå

Question 14

Short run monetary policy leads to…?

Answer 14

Increase in output, decrease in interest rate, and increase in price level.

Question 15

Contractionary fiscal policy leads to… ?

Answer 15

Lower demand. Price level and interest rate are lower than before

Question 16

An increase in the price level on oil leads to…?

Answer 16

To at decrease in the natural level of output. Production gets more expensive. AS shifts. Economy moves along ADcurve since demand hasn’t changed. A more expensive production leads to a higher price from firms. A higher price leads to a lower demand.

Question 17

An increase in expected inflation leads to an increase in actual inflation. Why?

Answer 17

Increase in expected inflation leads to increase in actual inflation because an increase in expected price level, which comes from a higher inflation, leads to wage settlers expecting a higher price and therefore they bargain for a higher wage. The higher wage leads to firms setting a higher price on their product. If firms sets a higher price on their products and workers gets a higher wage. They still get the same amount of goods for their wage as they did before the raise i.e. Inflation increases.

Question 18

Increase in unemployment leads to a decrease in inflation. Why?

Answer 18

Increase in u leads to a decrease in inflation because workers bargaining position is not as strong as it used to be. They now have to accept a lower wage because they are easy to exchange for someone else who are more willing to work for less.

Question 19

Limits of fiscal policy

Answer 19

If people are continuously not optimistic, the government has to run deficits (underskott) to sustain a high demand. Containing large deficits leads to public debt.

Question 20

Long run = … ?

Answer 20

Growth

Saving, Capital accumulation, Output

Technical progress, Solow model

Question 21

Aggregate production function (köttkvarnen)

Answer 21

Relation between aggregate supply and inputs in production.

Y = F( K, N)

F depends on the state of technology

Question 22

What restrictions can we reasonably impose on the aggregate production function?

Answer 22

Both K,N changes: constant return to scale. If you put in the double for K,N you get the double the output.

If only one of K and N changes: decreasing returns to capital or labour. 5 Secretaries hired to type, but only two typingmachines.

Question 23

What are the sources of growth?

Answer 23

Increase in capital per worker.

Improvements in state of technology. (Shifts the k/n curve upwards bc it leads to more y/n for less k.)

Question 24

When interest rates are low people…

Answer 24

…hold more money

Question 25

Increased money supply (expansionary monetary policy) will do what to the economy?

Answer 25

It will increase loaning and spending, lower interest rate means lower payback but also lower get back on bonds - people are more willing to hold money in cash. Easier for transactions, more consuming, sets the economy going.

Question 26

Liquidity trap

Answer 26

The liquidity trap is the situation in which prevailing interest rates are low and savings rates are high, making monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings, because of the prevailing belief that interest rates will soon rise. Because bonds have an inverse relationship to interest rates, many consumers do not want to hold an asset with a price that is expected to decline.