Macro Final

Question 1

Aggregate Supply shift factors

Answer 1

Technology
Natural Resources
Labor
Capital
Expected Price Levels

Question 2

Money Demand shift factors

Answer 2

Price Level and Real GDP(Income)

Question 3

Relationship between Money Demand and its shift factors

Answer 3

Positive; MD UP = PL and GDP UP

Question 4

Aggregate Demand shift factors

Answer 4

GDP, Taxes, Interest Rates, and Money Supply

Question 5

Relationship between Aggregate Demand and its shift factors

Answer 5

GDP and Money Supply are positive
AD UP = GDP & MS UP

Taxes and Interest Rates are opposite;
AD UP = T & IR DOWN

Question 6

Tax Change Formula (MPC version)

Answer 6

-MPC/(1-MPC)

Question 7

Government Spending Change Formula (MPC version)

Answer 7

1/1-MPC

Question 8

Difference between fiscal and monetary policy

Answer 8

Monetary: local government banks; FED buying and selling bonds
Fiscal: legislative branch; only controls Taxes and Government Purchases

Question 9

Expansionary Monetary Policy

Answer 9

FED buy bonds to fight recession
Money Supply UP
Interest Rate DOWN
AD UP
Real GDP and Price Level UP

Question 10

Contractionary Monetary Policy

Answer 10

FED - bonds to fight -
Money Supply
Interest Rate UP
AD
Real GDP and Price Level

Question 11

Expansionary Fiscal Policy

Answer 11

combats
Taxes
Government Purchases

Question 12

Contractionary Fiscal Policy

Answer 12

combats inflation
Taxes UP
Government Purchases DOWN

Question 13

Potential GDP

Answer 13

Output that is produced when everything is working smoothly; normal unemployment and no recession or inflation

Question 14

M1

Answer 14

simplest definition of Money Supply
- travelers checks
- checking account deposits
- money in circulation

Question 15

Money Supply changes when…

Answer 15

1. Open Market operations; Buy or sell bonds
2. Change in Reserve Requirement
3. Change in Discount Rate: FED interest rate for banks

Question 16

Money Supply goes __ when you buy bonds in a recession.

Answer 16

UP; more money with more bonds

Question 17

Money Supply goes __ when the Discount Rate from the FED goes up.

Answer 17

DOWN; less money the banks will want to circulate

Question 18

Money Supply goes __ when there is a change in Reserve Requirement.

Answer 18

DOWN; more money stored and not used in circulation

Question 19

Change in Money Supply formula

Answer 19

Change in reserves X money multiplier (

Question 20

3 functions of money

Answer 20

1. medium of exchange: accepted as payment
2. unit of account: way of measuring value
3. Store values: transfers purchasing power from present to future
4. standard of deferred payment: borrow for later like credit cards

Question 21

What is the difference between LRAS and SRAS shift factors

Answer 21

LRAS is the same as SRAS except Expected Price Level

Question 22

AD Short Term fluctuations

Answer 22

results in:
Real GDP and Price Level DOWN
AD goes left

Question 23

AS Short Term fluctuations

Answer 23

results in:
Real GDP DOWN
Price Level UP
AD goes left

Question 24

Crowding Out

Answer 24

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

Question 25

Causes of Interest Rate to Rise

Answer 25

Price Level UP
Money Demand UP

Question 26

Causes of Interest Rate to Fall

Answer 26

Price Level DOWN
Money Demand DOWN

Question 27

If price level and real GDP fall what happens to demand

Answer 27

Demand goes down; down GDP = recession

Question 28

Stagflation

Answer 28

Stagnant econ; combination of recession and inflation
SRAS is shifted left
High unemployment, high inflation, stagnating economy

Question 29

How do we get back from below Equilibrium

Answer 29

Interest rates rise and buy bonds