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Macroeconomics > Chapater 13 > Flashcards

Chapater 13 Flashcards

1
Q

In macroeconomics what are the two different paths of study?

A
  1. Long-run growth and development

2. Short-run fluctuations

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2
Q

What is most evident in real GDP and unemployment rate?

A

Business cycles

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3
Q

What is aggregate demand?

A

The total demand for final goods and services in an economy

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4
Q

What is aggregate supply?

A

The total supply of final goods and services in the economy

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5
Q

What is the sum of spending in the economy?

A

Aggregate demand

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6
Q

What is the equation of aggregate demand?

A

AD = C + I + G + NX

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7
Q

What does each letter in AD = C + I + G + NX stand for?

A
  1. Consumption
  2. Investment
  3. Gov’t spending
  4. Net exports
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8
Q

Increase or decrease:

An ______ in price level leads to a ______ in the quantity of aggregate demand

A

Increase; decrease

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9
Q

What is price level?

A

The price of all final goods and services

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10
Q

List the three reasons for the negative relationship between quantity of aggregate demand and price level

A
  1. The wealth effect
  2. The interest rate effect
  3. The international trade effect
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11
Q

What is wealth?

A

The value of one’s accumulated assets

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12
Q

Increase or decrease:

If the real wealth _______ the quantity of aggregate demand _______

A

Increases; increases

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13
Q

Increase or decrease:

If investment decreases, aggregate demand _______

A

Decreases

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14
Q

When price level increases what causes the following to decrease:

  1. Consumption
  2. Investment
  3. Net exports
A
  1. The wealth effect
  2. The interest rate effect
  3. The international trade effect
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15
Q

When do movements along the aggregate demand curve occur?

A

When there is a change in the price level

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16
Q

When do shifts along the aggregate demand curve occur?

A

When people demand more goods and services at a given price level

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17
Q

List the three causes of aggregate demand shifts

A
  1. Changes in real wealth
  2. General expectations about the future
  3. Changes in taxes
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18
Q

If people expect lower prices in the future will aggregate demand increase or decrease?

A

Decrease

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19
Q

For each scenario below, does it cause a movement along the curve or a shift in the curve?

  1. Consumers read positive economic news and then expect strong future economic growth.
  2. Due to an increase in the price level in the United States, consumers substitute out of clothes made in the United States and into clothes made in Nicaragua.
  3. Several European economies go into recession.
  4. A decrease in the price level leads to greater real wealth and more savings, which reduces the interest rate and increases investment.
A
  1. Shift
  2. Movement
  3. Shift
  4. Movement
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20
Q

What is the long run in macroeconomics?

A

The period of time sufficient for all prices to adjust

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21
Q

What is the short run in macroeconomics?

A

The period of time in which some prices have not yet adjusted

22
Q

How long does a time frame need to be in order for it to be considered a long run?

A

More then a year

23
Q

List the three items that will shift the long run aggregate supply?

A
  1. Resources
  2. Technology
  3. Institutions
24
Q

Is the long run affected by price level?

25
Q

What is the output produced in an economy where unemployment is the natural rate?

A

Full employment output

26
Q

Why is the LRAS curve a vertical line?

A

In the long run the price level does not affect the quantity of aggregate supply

27
Q

Why is the LRAS curve vertical?
A. The short run sets a given output that will remain in the long run.
B. Long-term output can only increase at a specific equilibrium price level.
C. Prices have nothing to do with long-term output.
D. Unemployment is zero in the long run.

28
Q

In the short run is there a positive or negative relationship between the price level and the quantity of aggregate supply?

29
Q

List the three reasons for a positive relationship in short run

A
  1. Sticky input prices
  2. Menu costs
  3. Money illusion
30
Q

Flexible or not flexible:

In sticky input prices the input prices are _______ and the output prices are _______

A

Not flexible; flexible

31
Q

Why aren’t short run input prices flexible and why are output prices flexible?

A

Input prices have a contract while output prices are east to change
(Think of Southwest oil example)

32
Q

What are menu costs?

A

The costs of changing prices

33
Q

If firms don’t adjust the prices when the price level changes what will happen?

A
  1. The will produce more output

2. The quantity of aggregate supply will increase

34
Q

What is the complete opposite of sticky input prices?

A

Menu costs

The input prices are flexible and the output prices aren’t flexible

35
Q

What occurs when people interpret nominal changes in wages or prices as real changes?

A

Money illusion

36
Q

List the three factors that shift only the short run aggregate supply

A
  1. Changes in resource prices (They become cheaper)
  2. Changes in expectations of prices
  3. Supply shocks
37
Q

What are supply shocks?

A

They are surprise events that change a firm’s production costs

38
Q

Give an example of a supply shock

A

A hurricane

39
Q

When the SRAS shifts to the right does that indicate an increase or decrease?

40
Q

When the SRAS shifts to the left does that indicate an increase or decrease?

41
Q

In each of the scenarios listed below, is there a shift in the long-run aggregate supply curve, the short-run aggregate supply curve, both, or neither?

  1. New shale gas deposits are found in North Dakota.
  2. Hot weather leads to lower crop yields in the Midwest.
  3. The Organization of Petroleum Exporting Countries (OPEC) meets and agrees to increase world oil output, leading to lower oil prices for six months.
  4. U.S. consumers expect greater income in 2014.
A
  1. Both
  2. SRAS curve
  3. SRAS curve
  4. Neither
42
Q

In the long run equilibrium what is the quantity of aggregate demand equal to?

A

The quantity of aggregate supply

43
Q

What is the equilibrium in equation form?

A

LRAS = SRAS = AD

44
Q

Is a SRAS permanent or temporary?

45
Q

If we were to have an economic downturn, what would happen to the equilibrium price level, unemployment, and real GDP in the short run?

A
  1. The price levels would rise
  2. Unemployment would rise
  3. Real GDP would fall
46
Q

In the short run do changes in aggregate demand affect the real economy?

47
Q

What is the aggregate demand-aggregate supply model?

A

The model that economists use to study short-run fluctuations in the economy

48
Q

What represent the spending side of the society?

A

Aggregate demand

49
Q

What represents the producing side of the economy?

A

Aggregate supply

50
Q

How does the aggregate demand–aggregate supply model help us understand the economy?

A

We use it to see how changes in either aggregate demand or aggregate supply affect real GDP, unemployment, and the price level

51
Q

How does the aggregate demand–aggregate supply model help us understand the economy?

A

We use it to see how changes in either aggregate demand or aggregate supply affect real GDP, unemployment, and the price level

Macroeconomics (9 decks)

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