Macro Flashcards
Contractionary fiscal policy
Decreases budget deficit
Increases budget surplus
Expansionary fiscal policy
Increases budget deficit
Decreases budget surplus
four components of GDP
consumption spending (C) business investment (I) government spending (G) net exports (X - M)
GDP = C + I + G + (X - M)
relationship between private saving and investment and the fiscal balance and trade balance
(G - T) = (S - I) - (X - M)
(G - T) = fiscal balance
(X - M) = trade balance
(S - I) = domestic savings and investment
offset a government budget deficit with…
a trade deficit or an excess of domestic savings over domestic investment
a government budget deficit combined with a trade surplus must be offset by…
a surplus of domestic savings over domestic investment
Short run aggregate supply curve
Positive relationship between real GDP supplied and the price level when other factors are held constant.
Holding some input costs fixed in the short run causes SRAS curve to slope upward because higher output prices result in greater output
Long run aggregate supply curve
Perfectly inelastic (vertical) Presents potential GDP, full-employment level of economic output
Shift in aggregate demand curve caused by changes in:
Household wealth Biz and consumer expectations Capacity utilization Fiscal policy Momentary policy Currency exchange rates Global economic growth rates
Shifts in short run aggregate supply curve are caused by change in
Nominal wages or other input prices Expectations of future prices Business taxes Business subsidies Currency exchange rates Factors that's affect long run agg supply
Shifts in long run aggregate supply curves are caused by changes in
Labor supply and quality
Supply of physical capital
Availability of natural resources
Level of technology
Recessionary gap
Aggregate demand decreases so Real GDP is less than potential real GDP (LRAS).
Resulting downward pressure on input prices increases SRAS. SRAS shifts to the right as input prices fall until AD = LRAS
Inflationary gap
increase in aggregate demand
real GDP is greater than potential real GDP (LRAS) in the short run, causing upward pressure on input prices. As input prices increase, SRAS decreases and AD = LRAS
sources of economic growth
increase in supply of labor increase in human capital increase in supply of physical capital increase in availability of resources advances in technology
early in a contraction, inventory/sales ratios
increase to above-normal levels
early in an expansion, inventory/sales ratios
decrease to below-normal levels
domestic currency appreciates
imports increase, exports decrease
domestic currency depreciates
imports decrease, exports increase
expansionary monetary policy actions
decrease policy rate
decrease reserve requirements
open market purchases of securities
contractionary monetary policy actions
increase policy rate
increase reserve requirements
open market sales of securities
increase in growth rate of money supply will have what effect on interest rates?
decrease nominal rates
decrease real interest rates in the short run
increase economic growth
an increase in the growth rate of the money supply will have what effect on currency and trade demand?
domestic currency will depreciate relative to country’s trading partners. this will increase export demand, increasing economic growth
tight monetary policy + tight fiscal policy =
higher interest rates
lower output
lower private sector spending
lower public sector spending
easy monetary policy + easy fiscal policy =
lower interest rates
higher output
higher private sector spending
higher public sector spending
