Brainscape's Knowledge GenomeTM

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


See full index

Pharmoeconomics Exam 2 > Chapter 11 - Aggregate Supply And Demand > Flashcards

Chapter 11 - Aggregate Supply And Demand Flashcards

1
Q

What are the 3 determinants of the Macro Economy

A

-Internal market forces
-External shocks
-Policy levers

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

Describe “internal market forces”

A

Population growth, spending behavior, invention and innovation

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

Describe “external shocks”

A

Wars, natural disasters, terrorist attacks, trade disruptions

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

Describe “policy levers”

A

Tax policy, gov spending, changes in interest rates, credit availability, money, trade policy immigration policy, and regulation

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

What are the 3 outcomes of the macro economy

A

Output (GDP)
Jobs (unemployment rate)
Prices (inflation)

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

Describe “output”

A

The total volume of goods and services produced (real GDP)

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

Describe “jobs”

A

The levels of employment and unemployment

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

Describe “prices”

A

The average prices of goods or services

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

What is aggregate demand?

A

The TOTAL QUANTITY of output demanded at alternative price levels at a given time period

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

Describe the aggregate demand curve

A

Downwards sloping. Real output (quantity/year)on x axis and price level (average price) on y axis

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

The aggregate demand curve shows that lower prices encourage….

A

MORE SPENDING

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

When looking at the aggregate demand curve, when average price decreases, real output ____. What does this say about the demand for output?

A

Real output increases. Therefore, more output is demanded

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

What are the 3 reasons for the AD curve being downwards sloping?

A
  1. Real balances effect
  2. Foreign trade effect
  3. Interest-rate effect
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Describe the real balances effect

A

As prices fall, money can purchases MORE goods and services (purchasing power increases as prices decrease). Value of money is measured by how much goods and services 1$ can buy

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

Describe the foreign trade effect

A

If domestic prices decline, consumers demand more domestic output (and fewer imports)
Also, other countries are more likely to want to buy our products

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

Net export =

A

Exports - imports

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

AD=

A

C+I+G+NE

C=consumption
I=Investment
G=Government
NE=Net Exports

18
Q

As price decreases, what happens to AD? Why?

A

AD increases because consumption (C) increases

19
Q

When consumers’ real income increases as a result of a decline in price, what happens to their spending habits?

A

Consumers will buy MORE goods and services C increases

20
Q

Describe the interest rate effect

A

At lower price levels, interest rate falls as consumers borrow less

21
Q

Lower interest rates stimulate ____ borrowing and loan-financed purchases

A

MORE

22
Q

Under the interest rate effect, what 2 things in the AD equation increase?

A

Consumption and investment (consumers AND businesses borrow and finance)

23
Q

What is aggregate supply?

A

The TOTAL QUANTITY of output producers are willing and able to supply at alternative price levels in a given time period

24
Q

Describe the aggregate supply (AS) curve

A

Upwards sloping. Price level (AVERAGE PRICE) on Y axis and REAL OUTPUT (quantity/year) on X axis

25
Q

Higher prices encourage _____ production

A

More

26
Q

Give 2 reasons for the AS curve being upwards sloping

A
  1. Profit margins
  2. Costs
27
Q

Explain why “Profit Margins” is considered a reason for the AS curve being upwards sloping

A

Higher product prices tend to widen producers’ profit margins so they will want to produce more and sell more goods

28
Q

Explain why “Costs” is considered a reason for the AS curve being upwards sloping

A

Production costs tend to increase as producers try to produce more. Therefore, they must use existing equipment more extensively which causes them to get worn out. They need to replace the machine which causes them to spend lot of $ and thus price to consumer increases

29
Q

_______ exists where PE=QE

A

Macro equilibrium

30
Q

At QE, desired spending =…

A

Production

31
Q

What are 2 potential problems with macro equilibrium?

A
  1. Undesirability
  2. Instability
32
Q

Describe the macro equilibrium problem of undesirability

A

The price-output relationship at equilibrium may not satisfy our macroeconomic goals

33
Q

In order to go closer to full employment (Qf), ____ has to go down which is undesirable

A

Price

34
Q

What are the 3 undesirable outcomes?

A

-full-employment GDP
-Unemployment
-Inflation

35
Q

Describe the potential problem of instability

A

Even if the designated macro equilibrium is optimal, it may be displaced by macro disturbances

36
Q

Describe how macro disturbances can affect macro equilibrium

A

When aggregate demand shifts left, lower price levels and lower level of output result
When aggregate supply shifts left, higher price levels and less output

37
Q

Apply a real life example to a leftward shift of the AS curve

A

Higher gas prices raise the cost of producing (airline, travel, deliveries, etc)
Thus, producers will be producing less at the same price/even higher price

38
Q

Apply a real life example to a leftward shift of the AD curve

A

If someone makes the same amount of money from 2020-2021 but their tax percent increases by 10%, they will have less after tax income in their pocket and won’t spend as much

39
Q

Describe what happens to the AD equation when the AD curve shifts to the left

A

C goes down, causing AD to go down

40
Q

What is individual demand?

A

Ability and willingness to buy a good or service by an individual

41
Q

What is market demand?

A

Total quantity demanded by all consumers for a SPECIFIC GOOD

42
Q

What is aggregate demand?

A

The total quantity of output demanded for ALL GOODS AND SERVICES in a given economy

Pharmoeconomics Exam 2 (5 decks)

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