Macro exam

Question 1

GDP

Answer 1

Total value of all final goods and services produced for the marketplace in a certain time period within a nation’s borders

Question 2

AD

Answer 2

Total spending on goods and services in a period of time at a given price level (REAL GDP DEMANDED at a price level)

Question 3

Changes in AD

Answer 3

Changes in components of AD
Expectations, fiscal & monetary policy

Question 4

Components of AD

Answer 4

Change in consumption (income tax, i.r., wealth, confidence)
Household indebtedness
Expectations (inflation, income)
Investment
Government spending
Net exports (exchange rate, inflation, protection vs liberalization)

Question 5

SRAS shifts

Answer 5

Wage rate
Raw materials
Price of imports
Government taxes / subsidies

Question 6

Long run

Answer 6

The time frame that is sufficiently long for all adjustments to be made so that real GDP equals potential GDP and there is full employment

Question 7

Supply-side policies

Answer 7

Policies, designed to increase the productive capacity of the economy, shifting LRAS to the right

Question 8

Interventionist SSPs

Answer 8

Spending on education, healthcare, infrastructure
Subsidies to firms for investment, research

However time lags, expensive

Question 9

Market based SSPs

Answer 9

Lower tax
Reduce benefits & trade union power
Competition: deregulation, trade liberalization (no subsidies, tariffs, quotas)

However no guarantee of success, deregulation, inequality bcs taxes, time lags

Question 10

The economic cycle

Answer 10

Periodic fluctuations in economic activity measured by changes in real GDP

Question 11

Monetary policy

Answer 11

Set of official policies governing the supply of money and the level of interest rates in an economy

Question 12

Money supply manipulation

Answer 12

Changing reserve requirement
Discount rate
Market operations (bonds)

Question 13

Expansionary monetary cons

Answer 13

Time lag
Ineffectiveness (low confidence, liquidity trap)
Impact on savers
Inflation

Question 14

Pros of monetary policy

Answer 14

Quick to implement
No political intervention
Small changes possible

Question 15

Fiscal policy

Answer 15

Government’s use of taxing and spending to keep the economy stable

Question 16

Cons of fiscal policy

Answer 16

Time lag (democratic process + seeing changes)
Political pressure
Debt
Effect on exports
Crowding-out

Question 17

Government debt

Answer 17

Accumulation of all the budget deficits over the years

Question 18

Categories of unemployment

Answer 18

Disequilibrium unemployment
Real wage unemployment
Demand-deficient unemployment

Question 19

Equilibrium unemployment

Answer 19

Frictional, structural, seasonal

Solving with supply-side policies

Question 20

Structural unemployment

Answer 20

New technology, cheaper labor force abroad, taste changes

Training, providing information
Reducing unemployment benefits, deregulation

Question 21

Inflation

Answer 21

Persistent increase in prices in an economy in a year

Question 22

Demand pull inflation

Answer 22

Falling interest rates
Falling taxes
More G
Weaker exchange rates

Contractionary monetary

Question 23

Cost push inflation

Answer 23

Higher raw material prices / imported
Higher wages
Higher taxes
Lower value of country currency

Monetary policy (demand-side)

Question 24

Costs of inflation

Answer 24

Loss of purchasing power
Less saving
Less internationally competitive products
Less growth (investment)
Uncertainty

Question 25

CPI flaws

Answer 25

Average family
Certain good price fluctuations
Housing not included

Question 26

Long term inflation

Answer 26

SSPs for more FOP

Question 27

Demand-side deflation

Answer 27

Delayed spending
Positive real interest rate
More debt
Low confidence, investment

Question 28

Economic growth

Answer 28

+ More national income, tax revenue, improvement in technology, improvement in competitiveness of exports

• Lower living standard, structural changes (inequality), environmental impact