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Economics > Chapter 5: An Introduction to Macroeconomics > Flashcards

Chapter 5: An Introduction to Macroeconomics Flashcards

1
Q

What are the two fields of economics?

A
  • macroeconomics
  • microeconomics
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2
Q

Microeconomics

A

How individual decision-making units behave
- one market

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3
Q

Macroeconomics

A

behavior of entire economies
- multiple markets

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4
Q

Domestic product

A

represents the total production of a nation’s economy

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5
Q

Aggregation

A

means combining many individual markets into one individual market
- total domestic product

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6
Q

Two foundations of aggregation

A

1.) Composition of demand and supply may be of little consequence for the economy-wide issues of growth, inflation, and unemployment

2.) During economic fluctuations, markets tend to move up or down together

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7
Q

Aggregate demand curve

A

shows the quantity of domestic product that is demanded at each possible value of the price level

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8
Q

Aggregate supply curve

A

shows the quantity of domestic product that is supplied at each possible value of the price level

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9
Q

Inflation

A

sustained increase in the general price level
- pushes the price level up (when AD moves to the right)

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10
Q

Recession and unemployment shift the AD curve to the_______

A

left
(Because total domestic product/output declines)

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11
Q

Recession

A

Period of time during which the total output of the economy declines

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12
Q

When both AD and AS shift to the right, it depicts______

A

Economic growth

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13
Q

Gross Domestic Product (GDP)

A

the sum of the money values of all final goods and services produced in the domestic economy and sold in organized markets during a specified period of time, usually a year

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14
Q

Nominal GDP

A

Calculated by valuing all outputs at current prices

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15
Q

Real GDP

A

calculated by valuing outputs of different years at common prices; therefore real GDP is a better measure than nominal GDP of changes in total production

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16
Q

Is Real or Nominal GDP a better measure of changes in total production?

A

Real

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17
Q

Problem with nominal GDP

A

It rises when prices rise– even if there is no increase in actual production

100 hamburgers are 100 hamburgers regardless of price

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18
Q

How to correct inflation (purpose of Real GDP)

A

values goods and services produced in different years at the same set of prices

“GDP corrected for inflation”

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19
Q

Recession is a period in which _____ GDP _____

A

Real; declines (for two or more consecutive quarters)

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20
Q

T/F The GDP for a particular year includes only goods ad services produced within the year; sales of items produced in previous years are explicitly excluded

A

True

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21
Q

T/F Only final goods and services count in GDP

A

True

22
Q

Final goods and services

A

those that are purchased by their ultimate users

23
Q

Intermediate goods

A

a good purchased for resale or for use in producing another good

24
Q

Domestic

A

GDP counts production in the US only

25
Q

T/F only goods and services that pass through organized markets count in the GDP

A

True

26
Q

Is gambling counted in GDP

A

No

27
Q

T/F Gross domestic product is NOT a measure of the nations economic well-being

A

True

28
Q

T/F Mobilization for a war fought on some other nation’s soil normally causes a country’s GDP to rise rapidly

A

True

29
Q

T/F Ecological costs are not deducted from the GDP in an effort to give us a truer measure of the net increase in economic welfare that our economy produces

A

True

30
Q

Real GDP per capita

A

ratio of real GDP divided by population

31
Q

A nation becomes richer only if its GDP grows _____ than its population

A

Faster

32
Q

alternating periods of rapid and slow growth

A

Macroeconomic fluctuation; business cycles

33
Q

Growth rate

A

the percentage change from one year to the next

34
Q

Deflation

A

refers to a sustained decrease in the general price level

35
Q

Great Depression

A
  • decline in economic activity and rapid deflation
36
Q

The General Theory of Employment, Interest, and Money (1936)

A

John Maynard Keynes

37
Q

Fiscal policy

A

government plan for spending and taxation; it can be used to steer aggregate demand in the desired direction

38
Q

High levels of Wartime spending causes what?

A
  • Inflation
  • Unemployment
39
Q

Stagflation

A

inflation that occurs while the economy is growing slowly or in a recession

  • economic stagnation AND inflation
  • aggregate supply curve shifts to the left (inward)
40
Q

Monetary policy

A

Refers to action taken by the Federal Reserve to influence aggregate demand by changing interest rates

41
Q

Reaganomics

A

Believed large tax cuts would boost growth and reduce inflation

42
Q

Clintonomics

A
  • forced to concentrate on deficit reduction
  • “New Economy”
43
Q

“New economy”

A

a product of globalization and computerization that naturally performed better than the economy of the past
- outward AS curve (faster economic growth and lower inflation)

44
Q

Tax cuts and government spending (fiscal policy) led to a shift of the AD curve ______

A

outward

45
Q

Lower interest rates=

A

more spending

46
Q

Obamanomics

A
  • recommended more tax cuts, a burst of federal spending, and large-scale aid to state and local governments to help them avoid painful budget cuts
47
Q

Stabilization policy

A

name given to government programs designed to prevent or shorten recessions and to counteract inflation (that is, to stabilize prices)

48
Q

Government can reduce unemployment by ______ AD

A

increasing

  • Congress can spend more or reduce taxes (fiscal policies) as it did with the 2009 stimulus bill
  • The Federal Reserve can lower interest rates (monetary policy) as it did in late 2007 and 2008
  • shifts the AD curve outward to the right
49
Q

Recessions and unemployment are often caused by insufficient aggregate demand; when such situations occur, fiscal or monetary policies that successfully augment demand can be effective ways to _______ output and ______ unemployment. They also normally _______ prices

A

Increase; reduce; raise

50
Q

Inflation is frequently caused by aggregate demand racing ahead too _____ when this is the case, fiscal or monetary policies that reduce aggregate demand can be effective anti-inflationary devices; but such policies also ______ real GDP and _____ unemployment

A

fast; decrease; raise

Economics (5 decks)

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