SS 5. Macroeconomic Analysis Flashcards
When inflation is higher than expected, ______ benefit and the expense of _______.
Borrowers, lenders
The effect whereby an increase in Government spending leads to an increase in interest rates, which in turn reduces private sector demand this is called:
Crowding out
A _____ index is a geometric average of a Laspeyres Index and a Paasche index
Fischer
A metric which shows the current state of economic activity within a particular area is called a:
Coincident indicator
What are a firm’s short-run and long-term decisions based on these Revenue/Cost relationships?
TR ≥ TC
TR > TVC but TR < TFC +TVC
TR < TVC
TR ≥ TC
Short-Run Decision: Stay in market
Long-Term Decision: Stay in market
TR > TVC but TR < TFC +TVC
Short-Run Decision: Stay in market
Long-Term Decision: Exit market
TR < TVC
Short-Run Decision: Shut down production to zero
Long-Term Decision: Exit market
Complementary goods have (positive/negative) cross price elasticity
Negative
Core inflation excludes:
Food and energy (highly volatile in the short term)
‘An inferior good, where the income effect outweighs the substitution effect’ is called a:
Giffen good
The time needed to identify the need for fiscal change is referred to as:
Recognition lag
What kind of inflation occurs when there is excessive growth in aggregate demand?
Demand-pull
The Nash equilibrium point for two competing firms will result in:
A suboptimal output for the two competing firms
_____ policy concerns money supply and interest rates
Monetary
Unemployment rate =
Number of unemployed / labor force
Substitutes have (positive/negative) cross price elasticity
Positive
Attempting to turn consumers surplus into economic profit is:
Price discrimination
‘The smallest quantity of output where long-run average costs reach a minimum’ is the:
Minimum efficient scale
(S-I) =
Private saving over private investments
‘An industry in which many firms offer products or services that are similar, but not perfect substitutes’ describes:
Monopolistic Competition
The time taken to enact relevant legislation is referred to as:
Action lag
What kind of inflation occurs after a supply shock such as a natural disaster?
Cost-push
Monetarist economists are most likely to believe that an under performing economy:
needs to be repaired through monetary policy
Name 3 factors that influence the price elasticity of demand
- Availability of substitutes (more substitutes = higher elasticity)
- Percentage of income spent on the good (greater the %, the greater the elasticity)
- Time elapsed since price change (greater the time since price change, the greater the elasticity)
Perfect price discrimination means that the marginal revenue curve:
becomes the demand curve
Explicit costs + implicit costs =
Total cost
MV = PY stands for:
M: Money Supply * V: Velocity of circulation = P: Price level * Y: Real GDP
Which of the following measures of profit is most likely necessary for a firm to stay in business in the long run?
Normal profit
Normal profit is the level of accounting profit needed to just cover the implicit opportunity costs ignored in accounting costs. This profit is all that a firm needs to earn in the long run to remain in business. Failing to earn normal profits over the long run has a debilitating impact on the firm’s ability to access capital and to function properly as a business enterprise. Economic profit (also known as abnormal or supernormal profit) is accounting profits in excess of implicit opportunity costs.
Labor force participation rate =
Labor force/Working age population
Normal products have income elasticity of:
Between 0 and 1
The amount of money created by the central bank by placing a $1,000 deposit in a commercial bank is calculated as:
Deposit amount
/
Reserve requirement
The average fixed cost curve is always:
Downward sloping
When a firm is unable to influence the market price for their industry, they are said to be:
Price takers
National income =
GDP - Statistical discrepancy - Capital consumption allowance
Disinflation is a situation when:
Prices are rising but slower than previously
(G-T) =
Government budget deficit
Total revenue - total cost =
Economic profit
Keynesian economists are most likely to believe that an under performing economy:
needs to be repaired through fiscal policy
Unemployment rate =
Unemployed/Labor force
(Marginal benefit - price paid) * quantity bought =
Consumer surplus
Classical economists are most likely to believe that an under performing economy:
will eventually repair itself
_____ policy concerns government income and expenses
Fiscal
A ____ index is when you always use the current consumption basket
Paasche
Minimum wage is an example of a:
Price floor
Personal Disposable Income =
Income - taxes
The marginal cost curve intersects the average total cost curve at its:
Minimum point
Normal profit =
Zero economic profit
Name the 3 types of unemployment:
Frictional unemployment
Cyclical unemployment
Structural unemployment
The time it takes for a fiscal policy action to affect the economy as intended is best described as:
Impact lag
Luxury products have income elasticity of:
More than 1
‘The action of selling the same product at different prices to different buyers, in order to maximize sales and profits’ describes:
Price discrimination
‘The practice of lending customers’ money to others on the assumption that not all customers will want all of their money back at any one time’ is known as:
Fractional reserve banking
‘As the price of a good declines, one has more disposable income to substitute for more of the same good’ describes:
The income effect
Inferior products have income elasticity of:
Below 0
The marginal propensity to save is:
1 - marginal propensity to consume
Advertising is an attempt to make the demand curve (flatter/move to the left/steeper)
Steeper
The difference between total revenue and total cost =
Economic profit
‘The addition to total revenue from selling one more unit’ is a definition of:
Marginal revenue
Name 5 major functions of a central bank:
- Keeping inflation within an acceptable range
- Controlling the money supply
- Promoting a sustainable economic growth rate
- Issuing currency
- Regulating banks
What shape is the money supply curve?
Vertical (money supply is determined by Central Bank Authorities)
________ unemployment is due to changes in the economy that eliminate some jobs while generating job openings for which unemployed workers are not qualified
Structural
What are the three automatic mechanisms that help stabilize the economy?
- Corporate taxes
- Personal taxes
- Transfer payments/social security benefits
_______ unemployment is due to constant changes in the economy that prevent qualified workers from being immediately matched with existing jobs
Frictional
A price index where the consumption basket is held constant is called a:
Laspeyres Index
Disposable income =
Personal income - taxes
‘Someone earning less than they could but unable to find that high paid work’ describes:
Underemployment
Over what period would a decline in real gross domestic product (GDP) be defined as a recession?
2 quarters
Constant returns to scale exist when:
The long run total average cost curve is flat
In monopolistic competition in the long run, firms are all producing (at/above/below) average cost.
Above
(X-M) =
Trade surplus
‘Producing at below minimum efficient scale’ is an inefficiency in a:
Monopoly market
Name the 4 types of macroeconomic equilibrium:
Long-run full employment
Short-run recessionary gap
Short-run inflationary gap
Short-run stagflation
______ unemployment happens when the economy is operating at less than full capacity
Cyclical
(S-I) = (G-T) - (X-M) stands for:
(S-I): Private saving over private investments = (G-T): Government budget deficit \+ (X-M): Trade surplus
The slope (gradient) of the LM curve is:
Positive
‘A period of time in which all factors of production and costs are variable’ is a definition of:
The long run
What are the effects on consumption, business investments and real GDP during a period of high inflation?
Consumption: Decrease
Investments: Decrease
Real GDP: Decrease
‘The sum of the value generated at each stage of production’ describes:
The sum-of-value method of calculating GDP
In the Austrian school business cycle theory, cycles are caused by:
Government intervention (through their fiscal policies of taxation and expenditure)
Which price index addresses the substitution bias in calculating CPI data?
The Paasche Index
‘The process through which the central bank transmits interest rates into the economy to control inflation’ describes:
The Monetary Transmission Mechanism
The aggregate demand curve during short-run stagflation:
remains constant
‘Movement of the AD curve to the right, leading to greater aggregate demand’ is the main cause of:
Short-run inflationary gap
What are the components of national income (3)?
Wages and benefits
Interest income
Indirect business taxes, less subsidies
‘To provide a gauge of inflation within the economy’ is the main purpose of:
the GDP deflator
The nominal rate of interest according to the Fisher effect is:
Real riskless rate + expected inflation
GDP under the expenditure method is the sum of (4):
Consumption spending, gross private domestic investment, government spending, and net exports.
If a bank in the U.S. needs to borrow funds to cover a temporary shortage in reserves, it can borrow from other banks at:
The federal funds rate
In a Free trade area:
All barriers to import and export of goods and services among member countries are removed.
In a Customs union:
All barriers to import and export of goods and services among member countries are removed.
In addition, all member countries adopt a common set of trade restrictions with non-members.
In a Common Market:
All barriers to import and export of goods and services among member countries are removed.
All member countries adopt a common set of trade restrictions with non-members.
In addition, all barriers to the movement of labor and capital goods among member countries are removed.
In an Economic Union:
All barriers to import and export of goods and services among member countries are removed.
All member countries adopt a common set of trade restrictions with non-members.
All barriers to the movement of labor and capital goods among member countries are removed.
In addition, member countries establish common institutions and economic policy.
In a Monetary Union:
All barriers to import and export of goods and services among member countries are removed.
All member countries adopt a common set of trade restrictions with non-members.
All barriers to the movement of labor and capital goods among member countries are removed.
Member countries establish common institutions and economic policy.
In addition, member countries adopt a single currency.
Reducing the reserve requirement will increase (3):
the money supply
money multiplier
new deposits.
Assume that a central bank has decided to lower interest rates in the economy. To carry out this policy, the central bank will:
Buy securities
In implementing monetary policy, central banks have three primary tools available to them: open market operations, setting the official policy rate, and reserve requirements. When the central bank purchases securities (open market operations), it increases the reserves held by private sector banks. These increased reserves lead to a reduction in interest rates on money market securities and, ultimately, to a reduction in other interest rates in the economy.
The late expansion phase is characterized by (3):
Acceleration of growth rate
Decreasing of unemployment rate
Increasing of inflation rate
The Capital Consumption Allowance is:
The amount of money a country has to spend each year to maintain its present level of economic production.
GDP = (formula)
GDP = C + I + G + (X - M)
C = Consumption spending
I = business Investment
G = Government spending
X - M = Net exports
