pictures Flashcards
what are the two graphs to represent the phillips curve *
how does output gap relate to inflation with phillips curve (diagram) *
what is the graph of money supply and interest rate and how does it change if the money supply is changed by omos or the discount rate *
if this is hours needed to make, calculate the relative costs of each of the four things in terms of the other, write it down on paper and star this card *
uk tv = 4, uk bank = 0.25,
china tv = 2, china bank = 0.5
what does the trade diagram (one with world price and domestic supply and demand) look like for any good that is traded is imported to where it is expensive in autarky from where it is cheap in autarky, for the importing country of cloth *
what does the trade diagram (one with world price and domestic supply and demand) look like for Any good that is traded is exported from where it is cheap in autarky to where it is expensive in autarky, for the exporting country of cloth *
What does the IS curve look like with interest rate and why *
high interest rates reduce output in the short run, because high interest rates make borrowing expensive for firms and households
how do you derive the equation for the IS curve *
write it out each of the steps
what happens to the IS curve if there is a postive aggregate demand shock, remember the equation Yt~bar = abar -bbar(Rt - rbar) *
this is because the abar value increases because it will lead to an investment boom for example. this shifts the curve to the right because yt~bar is on the x axis (think about the x intercept)
what does the IS-MP diagram look like, what are the axis and what are the different labels on the curves such as where do they meet and stuff *
when the real interest rate is equal to the marginal product of capital and there is no aggregate demand shocks so abar=0, short run output is equal to zero, the economy is at potential
what is the effect on the diagram of an increase in the interest rate on the IS-MP diagram * (try and draw it out)
how would the government try and stabilise the economy if there was a decline in the aggregate demand parameter abar in the IS curve (could be from burst housing bubble for example) (answer includes diagram of IS-MP curve analysis) ****
decline in abar causes IS curve to shift backwards where output is below potential so Y~bar is negative, in response the central bank lowers the nominal interest rate so due to sticky inflation the real interest rate decreases as well, as it falls below the marginal product of capital rbar firms and households increase investment so abar increases back up to potential
how does an increase in the nominal interest rate (through sticky inflation also the real interest rate) affect the IS curve and then the phillips curve as well (two separate diagrams) ***
this can be easily done because the x axis of output is the same for both diagrams so if you just decrease output by same on both diagrams it will be correct
what does the graph of money supply and money demand look like (actual diagram) *
how does the central bank go about increasing the interest rate (diagram) *
central bank reduces the money supply, as a result there is now an excess of demand over supply so banks don’t have enough currency for everyone so they are forced to pay a higher interest rate
what happens in IS-MP analysis if there is a housing bubble burst and then that housing bubble burst causes a deeper recession and how would government try to fix it
the government would carry on trying to reduce the interest rate even after it gets to point D
what are the relative prices of each of the four things, write them down *
work out who has the comparative advantage for each commodity write it down *
country A has comparative advantage in terms of cloth, country B has the comparative advantage in terms of wine,
country A 1C:1/3W,
country B 1C:1/2W, so country A has advantage
