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econ > econ 202 csusm macro final > Flashcards

econ 202 csusm macro final Flashcards

1
Q

Money Growth

A
  • if the federal reserve sells bonds then the money supply curve shifts left causing the price level to fall
  • short-run decision making
  • increase in money supply will lower interest rates and promote more investment/ spending (expansionary monetary policy)
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2
Q

Open Market Economy

A
  • bonds bought and sold increase and decrease money
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3
Q

3 Fed Tools

A
  • increase in money supply causes reserve requirement to decrease
  • decrease in money is supply is the increase of reserve requirement
  • lower discount rate equals higher money supply
  • decrease money supply equals increase in discount rate
  • if the fed buys bonds, money supply increases
  • if the fed sells bonds, money supply decreases
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4
Q

Monetary Policy

A
  • federal reserve lends out money
  • shifting the supply curve to the right
  • aggregate demand shift to the right
  • increase money supply -> decrease interest rates -> increase investment & consumption -> increase AD
    Reserve Requirement: lowered
    Discount Rate: Lowered
    Open Market Operations: buy bonds

Price level rises -> money demand(shift right) rises -> interest rate rises -> cost of borrowing/ return to saving rises -> consumption & investment decrease

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5
Q

Fiscal Policy (expansionary & contractionary)

A

EXPANSIONARY -> government spending/ taxes rises -> aggregate demand increases -> price level & output rise

CONTRACTIONARY: government spending falls -> aggregate demand decrease (sift left) -> price level & output decrease

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6
Q

Money appreciation

A
  • Exchange rate rises money appreciates
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7
Q

Money Depreciation

A
  • exchange rate falls, a currency is traded less so it depreciates
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8
Q

Money Depreciation

A
  • exchange rate falls, a currency is traded less so it depreciates
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9
Q

3 Effects of AD Curve

A
  1. Wealth Effect (C)
    - increase in price level -> real value falls -> consumers feel poorer -> AD quantity demanded decreases (vice versa)
  2. Interest Rate Effect (I) (RISE, RISE, RISE)
    - price level increase -> people need more $ to buy things -> interest rate increases -> cost of borrowing rises -> investment falls -> AD quantity decreases (vice versa)
  3. Exchange Rate Effect (movement, not a shift)
    - price level increase -> interest rate increase -> US real exchange rate appreciates -> US goods are more expensive than foreign -> US exports fall -> US imports rise -> AD quantity falls (vice versa)
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10
Q

Real Variable

A

Not affected by inflation or deflation like nominal variables
Examples:
- relative price
- real interest rate
- GDP

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11
Q

Nominal Variable

A

Adjusted to reflect the changing purchasing power of money over time (inflation/ deflation)
Examples:
- Wages
- Income
- Nominal GDP

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12
Q

Money Propensity to Consume (MPC)

A
  • a fraction of extra income a household spends rather than saves
  • as MPC rises, money multiplier rises too
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13
Q

Money Multiplier

A

1/ 1-MPC

(initial change in spending)x(spending multiplier) = overall change in AD
* USE IF C I G or NX DECREASES!

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14
Q

Tax Multiplier

A

-mpc/ 1-mpc

(initial change in taxes)x(tax multiplier) = overall change in AD

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15
Q

Crowding out effect

A

opposite of money multiplier; occurs when fiscal policy changes the interest rate and investment

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16
Q

Stagflation

A

shift to the left in SRAS -> stagnant economy with high unemployment and inflation

17
Q

NCO = NX

A

NX = exports - imports
NCO = what we invest - what foreigners invest

18
Q

Classic Economy (Real vs. Nominal)

A
  • both are separate
  • real variables are determined independently o f nominal variables such as money supply
19
Q

Short Run Effect

A
  • firms can only change the price through production adjustment
    -both price level and output decline (aka recession)
20
Q

Long run effect

A
  • firms are able to adjust all costs
  • seen solely by a drop in price level
  • a nominal change (price level) but not a real change (output stays the same)
  • AD SHIFT RIGHT: price level increase
21
Q

Shift factors of Aggregate Demand

A
  • taxes fall -> AD rises
  • taxes rise -> AD falls
  • expected price level drops -> short-run aggregate supply (SRAS) rises
    -> shift right
  • net exports rise -> AD rises -> shift right
22
Q

A decrease in the price level causes interest rates to..?

A

decrease -> dollar appreciates -> net exports increase

23
Q

If US real exchange rate appreciates, U.S. exports then..?

A

decrease and US imports increase

24
Q

2 factors that shift money demanded?

A
  • price level & income
  • movement caused by interest
25
Q

How to find price level and GDP on AD-AS graph?

A
26
Q

Exports vs. Imports

A
  • an import is a good bought from another country
  • an export is when a company provides a good or service for another country
27
Q

When shopping you notice that a pair of jeans costs $20 and that a t-shirt costs $10. You compute the price of jeans relative to t-shirts (find nominal and real variables)

A

Nominal: dollar price in jeans
Real: relative price of jeans

28
Q

If a US shirt maker purchases cotton from Egypt, U.S. net exports..?

A

decrease, and the U.S. net capital outflow decreases

29
Q

Changes in expected price shift in the SRAS graph?

A

shifts in actual price level move along SRAS curve

30
Q

An increase in the expected price level shifts short-run aggregate supply to the..?

A

LEFT, and an increase in the actual price level does not shift short-run aggregate supply

31
Q

Money supply and Interest?

A

go against each other

32
Q

Money demand and Interest?

A

goes together

33
Q

How FED controls changes in money supply

A

MONETARY POLICIES
- increase in money supply -> decrease in reserve requirement -> lend out more money
- can also change short-term interest rates by lowering or raising the discount rate that banks pay

34
Q

Multiplier Process

A
  1. changes in spending (1/1-MPC)
  2. Initial change in spending x Spending multiplier = overall change in AD
  3. Initial change in taxes x tax multiplier = overall change in AD
    (-MPC/1-MPC)
35
Q

Other things the same, an increase in the price level induces people to hold..?

A

more money, so they lend less, and the interest rate rises

36
Q

Sticky wage theory of short-run aggregate supply curve when the price level rises more than expected..?

A

production is more profitable and employment rises

37
Q

Decrease in price level causes interest rates to..?

A

decrease, the dollar depreciates, and net exports increase

econ (1 decks)

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