Si Session Flashcards
What is the opportunity cost of butter
At point A low at point B high
Las = sas = AD
Short run and long run equilibrium ?
Classical economists just look at what
Long run with unemployment and inflation
GDP =
C + I + G + Exports - Imports
NDP =
GDP - depreciation
GNP =
GDP + Income by citizens abroad - income by foreigners in this country
A flow concept
Reflects an ongoing stream per period of time
An example of a flow concept?
Income
A stock concept
Something that has accumulated over time but is at a specific point of time
Example of a stock concept
Wealth
The value of intermediate goods is:
Exclude from both GDP and GNP
Are expenditures a flow concept ?
Yes
Is wealth body weight or gallons of water in a pool a flow concept ?
No
In 2008, U.S. GNP exceeded U.S. GDP by approximately $133 billion. This implies that:
U.S. factor income earned abroad exceeded foreign factor income by $133 billion
If the nominal interest rate is 2% and inflation is 3%, the real interest rate is:
-1%
When someone stops mowing his lawn and hires a teen for cash that is unreported what happens to GDP?
It doesn’t change as production has shifted from non marketed to the underground economy and neither is counted
Wealth effect
As prices fall, the amount people can buy with their accumulated wealth increases
International effect
As domestic prices fall exports increase and imports decrease
Multiplier effect
Initial increases in expenditures are magnified as the effects of the initial increases circulate through the economy
Effect on AD curve: foreign income decreases
Shift to left
Effect on AD curve: exchange rate value of dollar falls
Shift to right
Effect on AD curve: consumers expect lower income in the future
Shift to the left
Effect on AD curve: distribution of income shifts toward high income families who typically save more and also purchase more imported goods
Shift to left
Effect on AD curve: home heating oil prides rise so people switch to natural gas
Not at all
Effect on AD curve: U.S. price level rises as expected
Not at all
In the AS/AD model, as prices fall people feel richer and buy more. This is what:
The wealth effect
In the AS/AD model, a fall in a foreign country’s income will cause:
A reduction in U.S. exports so the U.S. aggregate demand curve shifts left
A change in the distributed of income affects the AD curve because:
Workers are more likely than stockholders to spend the income they receive
Govt expenditures decreased. In AS/AD model this change should have:
Shifted AD curve to the left
At the intersection of the short run aggregate supply curve and the aggregate demand curve the economy is in:
A short run equilibrium but not necessarily a long. Run equilibrium
If potential output is less than actual output eventually the short run aggregate supply curve will shift:
Up and eliminate the inflationary gap
