Macro Final Flashcards
Aggregate Supply shift factors
Technology
Natural Resources
Labor
Capital
Expected Price Levels
Money Demand shift factors
Price Level and Real GDP(Income)
Relationship between Money Demand and its shift factors
Positive; MD UP = PL and GDP UP
Aggregate Demand shift factors
GDP, Taxes, Interest Rates, and Money Supply
Relationship between Aggregate Demand and its shift factors
GDP and Money Supply are positive
AD UP = GDP & MS UP
Taxes and Interest Rates are opposite;
AD UP = T & IR DOWN
Tax Change Formula (MPC version)
-MPC/(1-MPC)
Government Spending Change Formula (MPC version)
1/1-MPC
Difference between fiscal and monetary policy
Monetary: local government banks; FED buying and selling bonds
Fiscal: legislative branch; only controls Taxes and Government Purchases
Expansionary Monetary Policy
FED buy bonds to fight recession
Money Supply UP
Interest Rate DOWN
AD UP
Real GDP and Price Level UP
Contractionary Monetary Policy
FED - bonds to fight -
Money Supply
Interest Rate UP
AD
Real GDP and Price Level
Expansionary Fiscal Policy
combats
Taxes
Government Purchases
Contractionary Fiscal Policy
combats inflation
Taxes UP
Government Purchases DOWN
Potential GDP
Output that is produced when everything is working smoothly; normal unemployment and no recession or inflation
M1
simplest definition of Money Supply
- travelers checks
- checking account deposits
- money in circulation
Money Supply changes when…
- Open Market operations; Buy or sell bonds
- Change in Reserve Requirement
- Change in Discount Rate: FED interest rate for banks
Money Supply goes __ when you buy bonds in a recession.
UP; more money with more bonds
Money Supply goes __ when the Discount Rate from the FED goes up.
DOWN; less money the banks will want to circulate
Money Supply goes __ when there is a change in Reserve Requirement.
DOWN; more money stored and not used in circulation
Change in Money Supply formula
Change in reserves X money multiplier (
3 functions of money
- medium of exchange: accepted as payment
- unit of account: way of measuring value
- Store values: transfers purchasing power from present to future
- standard of deferred payment: borrow for later like credit cards
What is the difference between LRAS and SRAS shift factors
LRAS is the same as SRAS except Expected Price Level
AD Short Term fluctuations
results in:
Real GDP and Price Level DOWN
AD goes left
AS Short Term fluctuations
results in:
Real GDP DOWN
Price Level UP
AD goes left
Crowding Out
when government borrows they compete with everybody else in the economy who wants to borrow the limited amount of saving available; results in Interest Rate UP and Private Investment DOWN
Causes of Interest Rate to Rise
Price Level UP
Money Demand UP
Causes of Interest Rate to Fall
Price Level DOWN
Money Demand DOWN
If price level and real GDP fall what happens to demand
Demand goes down; down GDP = recession
Stagflation
Stagnant econ; combination of recession and inflation
SRAS is shifted left
High unemployment, high inflation, stagnating economy
How do we get back from below Equilibrium
Interest rates rise and buy bonds
