part 2 Flashcards
What are the most important objectives of the macro economy?
high level of production.
high level of employment.
(controlled) inflation rate.
balanced exchanges with foreign countries
What are the most important tools to achieve these objects?
- interest rate (monetary policy)
- fiscal policy
- public spending (G)
What does the aggregate demand curve show us?
The relationship between the aggregate price level and the quantity of aggregate output demanded by households, firms, government and the rest of the world.
The aggregate demand function?
AD=C+I+G+(X-M)
When the AD is sloping downwards, what is it indicating?
A negative relationship between the aggregate price level and the quantity of aggregate output demanded.
Why does a rise in the aggregate price level lead to a fall in the quantity of output demanded?
Because of the wealth effect. An increase in the aggregate price level reduces the purchasing power.
What does the aggregate supply curve show us?
The relationship between the economy’s aggregate price level and the total quantity of final goods producers are willing to supply.
What happens with the quantity of aggregate output supplied when the aggregate price level rise?
It also rises, this since a higher price is associated with higher profits for suppliers.
Why is the equilibrium price diagram useful?
It’s important to know the equilibrium levels to know at which level it’s proportional to set the price.
What happens when the price levels are over the equilibrium outcome?
In this case, AS exceeds AD for price levels over P1. Which means that it will need to put pressure on prices and national output downwards.
What does some skeptics say when it’s comes to sustainable growth?
Some have expressed doubt about whether sustainable growth in the long run is possible for a economy. Whether it can continue in the face of the limited supply of natural resources and the impact of growth on the environment.
How large are the suppliers of key natural resources?
There is a wide disagreement among experts, especially for future oil production. Some analysts believe that there is enough untapped oil, while others have different opinions.
How effective will technology be in finding alternatives to natural resources?
There are many alternatives to the natural resources, solar- and wind power are some who already is exploited.
Can long run economic growth continue in the face of scarcity in resources?
Most economists are optimistic, they believe that modern economies can find a way to work around limits on the supply of natural resources.
Explain and define:
Inflation
Price increases. A term when there is a persistent tendency of the general level of prices to rise. The rate over the past 12 months is telling us how much “extra” money we would need now in order to be able to purchase the same “basket” of goods and services as before.
