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Econ 102 > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

What event occurred around the early 1930s

A

The Great Depression

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2
Q

What event occurred around the late 2000s

A

The Great Recession

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3
Q

According to the AD-AS model, a significant increase in individual income taxes will have what effect on the economy

A

the economy will experience lower economic growth

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4
Q

Aggregate supply (AS) denotes the relationship between the ________ that firms choose to produce and sell and the_________ holding the______ fixed

A

total quantity, price level of outputs, price of inputs

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5
Q

The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called

A

Potential GDP

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6
Q

The flat, downward sloping shape of the AD curve shows

A
  1. that a lower price level for final outputs increases aggregate demand because of the wealth, interest rate, and foreign price effects

2.that the change in the quantity of aggregate demand is very large.

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7
Q

an increase in structural unemployment can be caused by what?

A

a decrease in aggregate demand

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8
Q

When do we hit equilibrium in a AS-AD model?

A

when aggregate supply and aggregate demand are the same

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9
Q

which economist believed that the level of GDP in the economy is not primarily determined by the potential of what the economy can supply, but rather by the amount of total demand.

A

Keynes

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10
Q

as the price level increases, the buying power of savings that people have stored up in bank accounts/assets diminish due to inflation (results in reduced consumption), this is known as the;

A

The Wealth Effect

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11
Q

as prices for outputs rise, the same purchases will take more money or credit to accomplish (results in reduced consumption and investment), this is known as the;

A

The Interest Rate Effect

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12
Q

points out that if prices rise while remaining stable in other countries then goods will be relatively more expensive compared to goods in the rest of the world (results in reduced net export), this is known as the;

A

The Foreign Price Effect

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13
Q

What causes the AD curve to slope downwards?

A

the foreign price effect, the wealth effect, the interest rate effect

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14
Q

which factor will have the greatest influence on the slope of the demand curve in a SINGLE market model?

A

substitution effect

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15
Q

What state exists when an economy experiences high unemployment and high inflation at the same time?

A

Stagflation

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16
Q

What happens as the aggregate price level(measure of the overall prices in an economy) in an economy decreases?

A

imports decrease

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17
Q

modern economists who agree to the says law view on the importance of supply for determining the size of the economy are referred to as..

A

Neoclassical Economists

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18
Q

According to the AD-AS model, a significant increase in individual income taxes will have what effect on the economy?

A

economy will experience lower economic growth

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19
Q

Aggregate supply curves are __________ at low levels of output and are ________ at high levels of output?

A

relatively flat; relatively steep

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20
Q

Potential GDP is unaffected by the..

A

unemployment rate

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21
Q

when an economy’s output increases, and the price level decreases. In an AD-AS model, which curve will shift and towards what direction?

A

AS;right

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22
Q

The zone of the AS-AD model labelled farthest to the left is known as the

A

Keynesian Range

23
Q

What factors occur in the Keynesian Range

A

-aggregate demand increases
-inflation remains low
-unemployment is high
-economy is in recession
-where the economy has excess capacity

24
Q

The zone of the AS-AD model labelled farthest to the right is known as the

A

Neoclassical range

25
Q

What factors occur in an neoclassical range?

A

-unemployment is low
-structural unemployment may remain an issue
-any increase in SRA produces inflation

26
Q

The zone of the AS-AD model labelled in the middle is known as the

A

Intermediate Zone

27
Q

What factors occur in the Intermediate zone?

A

-unemployment and inflation move in opposing directions
-a shift of AD to the right will reduce unemployment
-a shift of AD to the left will raise unemployment

28
Q

Changes in the price level of output, are reflected in the AD-AS macroeconomic model by what?

A

downward sloping AD curve

29
Q

what could explain a rise in cyclical unemployment?

A

a shift to the left in the AS or AD curves

30
Q

What element in an AD-AS diagram is most relevant to Say’s Law?

A

the steep portion of the AS curve

31
Q

real GDP is shown on what axis

A

horizontal

32
Q

Which of the following must be present in order for the aggregate supply curve to show an upward slope?

A

fixed cost of inputs combined with rising prices for outputs

33
Q

which law says “supply created its own demand”

A

Says law

34
Q

potential GDP is also known as

A

full employment GDP

35
Q

Which economist was in favour of competition, free trade and lifting restraints on business

A

Jean Baptiste Say

36
Q

what is known as the total quantity of goods and services people want to purchase at all price levels called in macroeconomics?

A

aggregate demand curve

37
Q

an increase in structural unemployment can be caused by what

A

a decrease in aggregate demand at all prices.

38
Q

total quantity of output (products/services) produced at a given price is known as (real gdp)

A

aggregate supply

39
Q

the total quantity produced at all prices is referred to as

A

Aggregate supply curve

40
Q

is known as the amount of total spending on domestic goods and services in an economy at a certain given price level; includes consumption, investment, government spending and net exports

A

aggregate demand

41
Q

is referred to the total quantity spending on domestic goods and services at each possible price level

A

aggregate demand curve

42
Q

is known as the intersection of the aggregate supply and aggregate demand curve, where aggregate supply equals aggregate demand

A

equilibrium (in real gdp and in price level)

43
Q

When supply EXCEEDS demand

A

deflationary pressures

44
Q

where demand EXCEEDS supply

A

inflationary pressures

45
Q

Short Run Aggregate Supply

A

a period in which input prices do not change, upward sloping

46
Q

Long Run Aggregate Supply

A

showing no relationship between the price level for output and real GDP in the long run, vertical line of potential GDP

47
Q

policies that seek to increase aggregate demand are known as

A

expansionary

48
Q

policies that seek to reduce aggregate demand are known as

A

contractionary

49
Q

how do we recognize periods of recession and economic booms in the AD-AS model?

A

-if the equilibrium is far from the potential GDP line (LRAS line) it represents and economy in recession

50
Q

How do we recognize economic growth in the AD-AS Model?

A

-a gradual shift to the right of both the SRAS and LRAS curves
-if the AD curve does not change the price levels will go down

51
Q

How do we recognize when inflation occurs in the AD-AS model?

A

-if the AD shifts to the right when the economy is already near potential GDP/Full employment
-the contraction in aggregate supply

52
Q

cyclical unemployment is caused by

A

the business cycle as economy expands and contracts

53
Q

a long run unemployment variation is known as

A

natural unemployment

54
Q

What change in the economy would cause an increase in the purchasing power of a consumer’s savings?

A

deflation

Econ 102 (9 decks)

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