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Macroeconomics > Exam 3 > Flashcards

Exam 3 Flashcards

1
Q

In the short run, how will wages and resources respond to a price increase

A

They will not increase as price levels increase

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2
Q

In the long run, how will wages and resources respond to a price increase

A

They will increase as price levels increase

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3
Q

Shifters of AD

A

Consumer spendingInvestment spendingGovernment spendingNet Exports

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4
Q

Shifters of AS

A

Inflationary expectationsResource pricesGovernment actions (taxes, subsidies, regulations)Productivity

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5
Q

Discretionary fiscal policy

A

Congress creates a new bill that is designed to change AD through government spending or taxation

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6
Q

Non-Discretionary fiscal polict

A

Permanent spending or taxation laws enacted to work counter cyclically to stabilize the economy

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7
Q

Expansionary fiscal policy

A

Laws to increase output

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8
Q

Expansionary fiscal policy examples

A

Increase government spending and decrease taxes (increases disposable income)

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9
Q

Contractionary fiscal policy

A

Laws to reduce inflation

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10
Q

Contractionary fiscal policy examples

A

Decrease government spending and increase taxes (decreases disposable income)

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11
Q

Deficit spending

A

If the government increases spending without increasing taxes they will increase the annual deficit and national debt

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12
Q

Time lags

A

Congress takes time to write, debate, pass, and implement legislation

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13
Q

Crowding out

A

Government spending might cause unintended effects that weaken the impact of the policy. Ex: deficit spending to increase AD would increase interest rates and decrease investment

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14
Q

Three functions of money

A

A medium of exchangeA unit of accountA store of value

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15
Q

A medium of exchange

A

Money can easily be used to buy goods and services with no complications of a barter system

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16
Q

A unit of account

A

Money measures the value of all goods and services. Money acts as a measurement of value

17
Q

A store of value

A

Money allows you to store purchasing power for the future

18
Q

Commodity money

A

Something that performs the function of money and has alternative uses (cigarettes in prison)

19
Q

Fiat money

A

Something that serves as money but has no other important uses ($20 bill)

20
Q

Shifters of money demand (Dm)

A

Changes in price levelChanges in incomeChanges in taxation that affects personal investment

21
Q

Changes in price level

A

Inflation requires the consumer to hold more cash for financial transactions

22
Q

Changes in income

A

Sustained economic growth in the economy leads to more employment and increase in the demand for money

23
Q

Changes in taxation that affects personal investment

A

Government policies such as changing the capital gains tax would change the demand for money

24
Q

Shifters of the money supply

A

Change in reserve ratioChange in the discount rateChange in the discount rate

25
Q

Change in reserve ratio

A

To increase the money supply, decrease the reserve ratioTo decrease the money supply, increase the reserve ratio

26
Q

Change in the discount rate

A

To increase the money supply, decrease the discount rateTo decrease the money supply, increase the discount rate

27
Q

Change in the discount rate

A

To increase the money supply, the FED buys bondsTo increase the money supply, the FED sells bonds

28
Q

Federal Funds Rate

A

The interest rate that banks charge one another for one-day loans of reserves

29
Q

Supply shock

A

An event that affects aggregate supply

Drought, hurricane, oil shock

30
Q

Stagflation

A

persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.

Caused by a negative supply shock

31
Q

Autonomous Consumption

A

the minimum level of consumption or spending that must take place even if a consumer has no disposable income, such as spending for basic necessities.

32
Q

Classical Economic Theory

A

Hands off; let the market decide

33
Q

Keynesian economic theory

A

Govt involvement (inc/dec taxes, etc)

34
Q

Spending multiplier equation

A

1/1-mpc or 1/mps

35
Q

If LRAS shifts, what else shifts

A

LRPC

36
Q

If AS shifts right…

A

Shift the SRPC to the left

37
Q

If AD shifts…

A

Move along the SRPC

Macroeconomics (7 decks)

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