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Macro Flashcards

0
Q

Three separate categories with the BOP

A

the current account, the capital account and the financial account and accounts within what?

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1
Q

Balance of Payment BOP define:

A

place where countries record their monetary transactions with the rest of the world. Transactions are either marked as a credit or a debit.

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2
Q

Balance of trade or BOT

A

The difference between a country’s imports and its exports.

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3
Q

The BOT is the largest part of BOP?

A

True

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4
Q

$2029 says the FED…

A

The amount of physical US dollars per person are in circulation domestically (recent to 2013)

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5
Q

GDP Deflator

A

An economic metric that accounts for inflation by converting output measured at current prices into constant-dollar GDP. The GDP deflator shows how much a change in the base year’s GDP relies upon changes in the price level. Also known as the “GDP implicit price deflator.”

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6
Q

Output gap

A

An economic measure of the difference between the actual output of an economy and the output it could achieve when it is most efficient, or at full capacity. There are two types of output gaps: positive and negative. A positive output gap occurs when actual output is more than the full-capacity output. Negative output gap occurs when actual output is less than full-capacity output.

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7
Q

Positive output gap

A

A positive output gap occurs when actual output is more than the full-capacity output. And there are more workers and factories needed. Economic theory suggests that positive output gap will lead to inflation as production and labor costs rise.

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8
Q

Negative Output Gap

A

Negative output gap occurs when actual output is less than full-capacity output. And there is slack in the economy.

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9
Q

Richard Fisher

A

Fed reserve bank of Dallas President. Becomes a voting member of the FOMC policy committee 2014.

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10
Q

Charles Plosser

A

Fed reserve bank Philadelphia president.

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11
Q

Charles Evans

A

Fed reserve Chicago president. Pro monetary intervention for a long time

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12
Q

John Maynard Keynes

A

Father of Keynesian economics

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13
Q

Adam Smith, David Ricardo, Jean Baptiste Say

A

Fathers of Classical economics

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14
Q

Main difference between Keynesian Econ and classical Econ…

A

How an economy recovers from a recession

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15
Q

Time period in which US economy moved from classical Econ to Keynesian Econ

A

1930s

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16
Q

Conservatives Econ views are rooted in what school of Econ?

A

Classical Econ

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17
Q

Classical Econ calls for what during a recession?

A

Price adjustment mechanism

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18
Q

Classical Econ believes what things would fall during a period of high unemployment

A

Prices. Wages. Interest rates.

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19
Q

Under classical Econ, high unemployment naturally brings a fall in wages, prices, interest rate which causes …

A

Increase in consumption, production, investment, bringing the economy back to full employment.

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20
Q

Keynesian rebuttal to the classical price adjustment mechanism assumption…

A

Before the price adjustment mechanism can take affect, a “income mechanism” takes affect, causing the population to save less and spend less, and businesses to invest and produce less.

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21
Q

The Keynesian “income adjustment mechanism” has what effect on a struggling economy?

A

Causes less spending, saving, production, investment, and thereby driving the economy further into recession.

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22
Q

Classical Econ calls for Laissez faire approach which means

A

Limited or no government intervention.

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23
Q

Keynesian economists have the view that government can …

A

Implement large-scale expenditures and policies that will positively affect the economy.

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24
Q

Fathers of classical Econ…

A

Adam Smith, David Ricardo, Jean Baptiste Say

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25
Q

Classical Econ believes that unemployment begins when

A

Wages are too high

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26
Q

Classical Econ believes that unemployment is a normal occurrence and once wages drop…

A

Companies can hire again and unemployment will drop

27
Q

Classical Econ rejects the notion that cyclical unemployment is caused by

A

Shortage in aggregate demand.

28
Q

Frictional and structural unemployment, according to classical Econ,

A

Are normal and do exist

29
Q

Time period that seemed to stump the classical Econ and brought about the possibility for change of view…

A

1930s depression

30
Q

“The General Theory of Employment, Interest and Money”

A

Published 1936 by British economist, John Maynard Keynes

31
Q

“In the long run, we’re all dead”

A

JMK, 1936, The General Theory of EIM. Describing the futility of waiting for a recession to correct itself as suggested by the classical economists of the time.

32
Q

Keynesian Econ was received how by the Econ community?

A

Complete heresy, branded as socialists and communists for advocating such an activist role for the central government.

33
Q

Two key pillars of classical Econ

A
  1. Says law

2. quantity theory of money

34
Q

Says Law says…

A

Supply creates its own Demand

35
Q

Says Law works like this

A

People earn income for producing goods and services, therefore they use that income to buy goods and services, there is a balance between what is produced and what is consumed. Supply creates its own Demand.

36
Q

Malthus’s criticism to Says law…

A

People will save part of their money, thereby not consuming all of the goods produced, thereby creating a surplus, resulting in unemployment

37
Q

Say and Ricardo’s rebuttal to Malthus criticism

A

Any money saved by the consumer will be invested in the economy thereby aggregate demand plus investment equals aggregate supply.

38
Q

Quantity Theory of Money’s

, Equation of exchange

A

M * V = P * Q
Money Supply * Velocity of Money = Price * Quantity of Output Sold.
In classical Econ, this explains why rising M = rising P

39
Q

M * V = P * Q

Explain this and name it

A

The Equation of Exchange according to classical Econ.

Money Supply * Velocity of Money = Price * Quantity of Output Sold.

40
Q

M * V = P * Q

Explain P

A

P = the general price of goods and services, such as the CPI index.
Under the Quantity Theory of Money, P changes in correlation to M.

41
Q

M * V = P * Q

What does the right side of this equation represent

A

Nominal inflation adjusted output, like GDP

42
Q

M * V = P * Q

What are the differences between classical and Keynesian Econ with regard to this equation (generally speaking)

A

Classical: the Q remains constant and changes in M only affect P.
Keynesian: the P remains constant and changes in M only affect Q.

43
Q

In classical Econ, there is a lag time that it takes for the Economy to correct itself and Keynes was able to say…

A

During this lag time, government should impact policy to bridge the road back to economic recovery.

44
Q

List the axis and curves on the AS-AD model

A 
Y axis: Price
X axis: real output, GDP
AD slopes downward
AS slopes upward
E: represent equilibrium
45
Q

Q sub c in the AD AS model represents

A

Output at full capacity

46
Q

Define Ceteris Paribus

A

Holding all other things constant

47
Q

3 reasons why the AD line slopes downward

A
  1. Wealth effect: consumers consume more when prices drop and their purchasing power increases
  2. Interest rate effect: When prices drop, interest rates drop, thereby spurring consumption through the use of borrowed funds
  3. Net export effect: when domestic prices fall, foreign buyers buy more
48
Q

4 determinants of aggregate demand

A
  1. Consumption spending
  2. Investment Spending
  3. Government Spending
  4. Net Export Spending
49
Q

3 determinates of Aggregate Supply

A
  1. Change in input prices
  2. Change in technology and productivity
  3. Change in legal and institutional environment
50
Q

Productivity defined

A

Total outputs divided by total inputs

51
Q

The 3 ranges of the economy

A

Keynesian Range, Classical range, intermediate Range

52
Q

In the Keynesian Range: state of economy? and Fiscal policy will do what?

A

economy is in a recession or depression; there is surplus labor and machinery that needs to be employed; therefore fiscal policy can be used without causing inflation;

53
Q

In the Keynesian Range: prices are what?

A

Prices are fixed

54
Q

In the Keynesian Range: an increase in aggregate output due to government fiscal policy will do what to prices?

A

Prices will remain the same, but output will increase

55
Q

In the Classical Range, government fiscal policy will do what to prices?

A

Cause them to rise, just as described by the Classical economists

56
Q

In the Classical Range, the price level will increase due to what?

A

expansionary policies will cause prices to rise

57
Q

In the Classical Range, what type of inflation is caused when prices rise?

A

Demand-pull inflation

58
Q

During the Intermediate Range what happens to prices and Aggregate output due to expansionary policies?

A

Price levels rise due to demand-pull inflation AND Aggregate Output increases

59
Q

During the Intermediate Range, do all sectors rise at the same time due to expansionary policies?

A

No, There are innumerable markets, and they will all react differently during expansion while in the Intermediate Range

60
Q

Other names for the Keynesian model

A

Multiplier model, Aggregate production-aggregate expenditures model

61
Q

Fiscal policy is what two type of government interaction with the economy

A

The government can use expenditures and/or tax reduction

62
Q

Economists learned during the 1970’s about Keynesian theory

A

That is does always work, stagflation of the 1970’s could not be cured with Keynesian econ

63
Q

At the root of Keynes theory is that when the economy is in recession, price are…

A

prices are fixed; Therefore, wages would adjust but prices would not adjust;

64
Q

Describe the layout of the Keynesian Model

A

y axis: Aggregate Expenditures; x axis: Real GDP or Output; there is a 45 deg line representing Aggregate Production; AE curve = C+I+G+X

65
Q

Keynesian Model: equilibrium occurs where?

A

Where the AE curve crosses the AP line

66
Q

Keynesian Model: when Equilibrium occurs at a point where Q is greater than Q sub P; and if it is lower?

A

Greater than Q sub P would indicate an Inflationary Gap; Less than Q sub P would indicate a Recessionary Gap

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