Chapter 13 Flashcards
What will increase Aggregate Demand?
a tax cut an increase in gov't spending M1 increasing positive household expectations businesses with positive expectations increased business cash flow increase consumer confidence lower household debt
What will decrease AD?
M2 decreasing Higher interest rates Recessions in foreign countries A strong/appreciating dollar A corporate tax hike A degrease in G spending M1 decreasing
What determines Aggregate supply in the long-run?
amount/quality of resource including level of capital stock and level of technology
Does a change in the price level change output? (Long-run aggregate supply)
no
An increase in LRAS is called
Economic Growth
What will shift LRAS right?
more resources, better technology
What will shift LRAS left?
fewer resources, worse technology
In the short-run, an increase in the price level will cause output to
increase
the price of inputs, such as labor and natural resources, are “sticky” in the short-run, which means that
slow to change
if goods prices rise in the short-run (CPI increases), an increase in output can blank profits
if good prices rise in the short-run (CPI increases), an increase in output can increase profits
What will increase SRAS?
Energy prices decrease
Productivity increases
Technology improves
What will decrease SRAS?
wages increase
materials costs increase
what is a supply shock?
most widely used
decrease in SRAS
negative value
Which way will it shift?
left
What happens to prices and GDP?
prices increase, GDP decreases
***stagflation
start a LR equilibrium
what happens to the price level and GDP in the following? AD increases. Prices blank and GDP blank. Recession? Inflation?
AD increase prices rise GDP rise recession no inflation yes
AD decreases prices blank GDP blank Recession? Inflation?
AD decreases Prices decrease GDP decreases Recession yes Inflation no
SRAS increases. Prices blank GDP blank Recession? Inflation?
SRAS increases. Prices decrease GDP increases Recession? no Inflation? no
SRAS decreases Prices blank GDP blank Recession? Inflation?
SRAS decreases Prices increase GDP decreases Recession? yes Inflation? yes
A recession caused by a decline in AD due to a financial crisis is
about the worst thing that can happen
much longer and more severe than the usual recession
is expected to have negative effects for about 7 years
results in liquidity crises and bank closures
Dynamic Model:
LRAS increases each year
Potential GDP is expected to blank each year
Dynamic Model:
Potential GDP is expected to increase each year
Dynamic Model:
During most years AD shifts
Dynamic Model:
During most years AD shifts right
see the graph under
dynamic model
What is the usual cause of inflation?
large increase in AD
The recession of 2007-2009 had three major factors. name them
housing bubble
oil prices increase
financial crisis
Recession of 2007-2009
what impacted wealth and C (households)?
housing bubble
financial crisis
impacts wealth and C
Recession of 2007-2009
which one impact SRAS?
oil prices increase
impacts SRAS
Recession 2007-2009
which one impacted I (business investment)?
business investment: financial markets and housing bubble
