Economic Fluctuations Flashcards
GDP grows at ___ percent per year with huge fluctuations in___________
3-5, the short run
consumption and investment change _____
with GDP
Consumption is less volatile while investment
is more volatile
unemployment falls
when there is
expansion
Fluctuation in investment is much greater than
consumption and real GDP
dip in investment has to do
with recession
AD: Y =
MV/P
AD: Y = MV/P – how much output you will demand will be based on how
much ______ you have and what ___ you have to pay so if P increases QD
will ____
money, price, fall
AS=
Y = F (K, L)
Monetary policy in not effective in raising supply – because AS depends on
production function
there is no fiscal policy since ___ there is not tax or government
spending ____
Y = MV/Y, unless you increase money
monetarist model
C + I + G = MV/P
So, when G and C increases it will mean that _____
money demand increases
Money demand =
M= (1/V) PY
V=V (i) so when i increases
this will increase V
So, if interest rates rise this will increase V and reduce 1/V
which will decrease
money demand
There is ISLM model – where investment and savings are made ____ at different
_____ – this is the ____ market
EQUAL, interest rates, goods market
L which is real money demand =
M/P
M = money supply is made equal by
the ____
nominal interest rate
In the short-run we assume prices are sticky, so they do not ____ – so
SRAS is perfectly _____
move, elastic
The adjustment of _____ is what moves
the economy to its long-run equilibrium.
prices
Shocks will temporarily shift the economy away from_____
full employment
Supply shock
alters the cost of production and affects firm’s prices
Stabilization policy
actions used to reduce the severity of a short-run shock
Monetary policy may be used by increasing money supply to increase the ___ when
there is a _____ – but this will lead to a long run permanent increase in ____
while Y stays the same
AD, supply shock, P
