quiz 4

Question 1

Aggregate Supply (AS)

Answer 1

The total amount of goods and services that all the firms in all the industries in a country will produce at various price levels in a given period of time

Question 2

Balance of Payments

Answer 2

Measures all the monetary exchanges between one nation and all other nations. Includes the current account and the capital account.

Question 3

Capital Account

Answer 3

Measures flow of funds for investment in real assets (such as factories or office buildings) or financial assets (such as stocks and bonds) between a nation and the rest of the world.

Question 4

Contractionary Fiscal Policy

Answer 4

A demand-side policy whereby government increases taxes or decreases its expenditures in order to reduce aggregate demand. Could be used in a period of high inflation to bring down inflation rate.

Question 5

Cost-Push Inflation

Answer 5

Inflation resulting from a decrease in AS ( from higher wage rates and raw material prices, such as the price of oil) and accompanied by a decrease in real output and employment. Also referred to as “stagflation” or “adverse aggregate supply shock”

Question 6

Current Account

Answer 6

Measures the balance of trade in goods and services and the flow of income between one nation and all other nations. It also records monetary gifts or grants that flow into or out of a country. Equal to a country’s net exports, or its imports minus it’s exports.

Question 7

Demand Deposit

Answer 7

A deposit in a commercial bank against which checks can be written. Also known as a “checkable deposit”

Question 8

Demand-Pull Inflation

Answer 8

Inflation resulting in an increase in AD without a corresponding increase in AS

Question 9

Excess Reserves

Answer 9

The amount by which a bank’s actual reserves exceed its required reserves. Banks can lend excess reserves; when they do, they expand the money supply. The amount of excess reserves in the banking system determines equilibrium interest rate.

Question 10

Loanable Funds Market

Answer 10

The market in which the demand for private investment and the supply of household savings intersect to determine the equilibrium real interest rate.

Question 11

Macroeconomic Equilibrium

Answer 11

The level of output at which a nation is producing at any particular period of time. May be below its full employment level (if the economy is in recession) or beyond its full employment level ( if the economy is overheating)

Question 12

Money

Answer 12

Any object that can be used to facilitate the exchange of goods and services in a market

Question 13

Money Supply

Answer 13

The vertical curve representing the total supply of excess reserves in a nations banking system. Determined by monetary policy actions of the central bank.

Question 14

Net Exports

Answer 14

A component of aggregate demand that equals the income earned from the sales of exports to the rest of the world minus expenditures by domestic consumers on imports.

Question 15

Protectionism

Answer 15

The use of tariffs, quotas, or subsidies to give domestic consumers a competitive advantage over foreign producers. Meant to protect domestic production and employment from foreign competition.

Question 16

Self-Correction

Answer 16

The idea that an economy producing at an equilibrium level of output that is above or below its full employment will return on its own to its full employment level if left to its own devices. Requires flexible wages and prices associated with classical economic views.