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FNCE 101 > Shifts in Economy > Flashcards

Shifts in Economy Flashcards

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1
Q

productivity (increase)

A

ND increase

FE right

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2
Q

margin­al product of labor (increase)

A

ND increase

FE right

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3
Q

capitaI stock (increase)

A

ND increase

FE right

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4
Q

wealth (increase)

A 
NS decrease (Income Effect)
FE left  (Classical)

Increase in wealth increases amount of leisure workers can afford .

S decreases
Md increases

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5
Q

future wage (increase)

A 
NS decrease (Income Effect)
FE left (Classical)

Increase in expected future real wage increases amount of leisure workers
can afford.

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6
Q

Working-age population (increase)

A 
NS increase
FE right (Classical)
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7
Q

Labor Participation Rate (increase)

A 
NS increase
FE right (Classical)
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8
Q

ND increase shifts

A 
1 productivity (increase)
2 capital stock (increase)
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9
Q

NS increase shifts

A

1 wealth (decrease)
2 future income (decrease)
3 population (increase)
4 participation rate (increase)

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10
Q

current output Y (increases)

A

Savings (increases)

S (increases)

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11
Q

expected future output Yf (increases)

A

S decreases
IS increases

Anticipation of future income raises current desired consumption, lowering current
desired saving.

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12
Q

Wealth (increases)

A

S decreases
IS increases

Some of the extra wealth is consumed, which reduces saving for given income.

NS decrease
Md increases

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13
Q

expected real interest rate r (increases)

A

S probably rises (substitution effect)

An increased return makes saving more attractive, probably outweighing the fact that
less must be saved to reach a specific savings target.

income effect (borrower):  S increase
income effect (lender): S decrease
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14
Q

Government purchases (increase) G

A

S fall
IS increases

Higher government purchases directly lower desired national saving.

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15
Q

Taxes increase

A

S increases if no RE
S unchanged if RE
IS decreases

saving rises if consumers don’t take into account a
future tax cut and thus reduce current consumption.

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16
Q

Savings S increase shifts

A 
1 Y increase
2 Yf decreases
3 wealth decreases
4 expected real interest rate increases
5 G decreases
6 T increase
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17
Q

investment increase I

A

1 real interest rate decreases r
2 effective tax rate decreases t
3 expected future MPK increases

MPK f = uc/ (1-t)
uc = (r+d)pk/(1-t)
so uc increase generally increases investment curve

pk = price of new capital good 
r = interest 
d = depreciation
18
Q

real interest rate increase

A

investment decrease

The user cost increases, which reduces desired capital stock.

Md falls

19
Q

effective tax rate increases

A

investment decreases

IS shifts left decreases

20
Q

expected future MPK increases

A

investment increases

IS increases

21
Q

Md increase shifts

Money Demand

A 
1 Price level P (increase)
2 Real income Y (increase)
3 real interest rate r (decrease)
4 expected inflation (decrease)
Md = P x L(Y, i )
i = r + inflation

5 nominal interest rate on money (increase)
6 wealth (increase)
7 risk of alternative assets (increase)
8 risk of money (decreases)
9 liquidity of alternative assets (decrease)
10 efficiency of payment technologies (decrease)

22
Q

Price level P (increase)

A

Ms Shifts, not md
Md rises proportionally
LM left

23
Q

Real income Y (increase)

A

Md rises less than proportionally

LM left

24
Q

Real interest rate r (increase)

A

Md falls
LM right
Investment I decreases

25
Q

expected inflation (increases)

A

Md falls

LM right

26
Q

nominal interest rate on money im (increase)

A

Md rises

LM left

27
Q

wealth (increase)

A

Md increases
LM left

part of increase in wealth can be held in form of money

S decreases
NS decrease

28
Q

risk of alternative assets (increase)

A

Md rises

LM left

29
Q

risk of Money (increase)

A

Md decreases

LM right

30
Q

liquidity of alternative assets (increase)

A

Md falls

LM right

31
Q

liquidity of Money (increases_

A

Md increases

LM left

32
Q

factors that shift FE right

A

1 beneficial supply shock
2 increase in labor supply
3 increase in capital stock

33
Q

savings curve (increase)

A

IS shifts left

34
Q

factors the shift IS curve right

A 
1 expected future output (increase)
2 wealth (increase)
3 government purchases G (increase)
4 taxes T (decrease) RE
5 future MPK (increase)
6 effective tax rate on capital (decrease)
35
Q

investment curve (increase)

A

IS shifts left

36
Q

factors that shift LM curve right

A

1 nominal money supply M (increase)
2 Price level P (decrease)
3 Expected inflation (increase)
4 nominal interest rate on money im (decrease)
5 any other thing decreasing Md
decrease wealth, decease risk of alternative assets, increase liquidity of alternative assets, increase in efficiency of payment technologies

37
Q

Md money demand falls

A

LM right

38
Q

M rises money supply

A

LM left

39
Q

IS right

AD?

A

AD right

40
Q

LM right

A

AD right

41
Q

AD right shifts

A 
1 IS right
- S decrease or I increase
- expected future output (increase)
- wealth (increase)
- G (increase)
- T (decrease)
-future MPK (increase)
- effective tax rate on capital (decreases)
2 LM right
- Md decrease or M increase
- M nominal money supply (increase)
- expected inflation (increase)
- nominal interest rate on money (decrease)
- risk of assets (decrease)
- risk of money (increase)
42
Q

temporary wage increase

A

NS increases (substitution effect)

FNCE 101 (4 decks)

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