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Macroeconomics > Test 2 Study Guide > Flashcards

Test 2 Study Guide Flashcards

1
Q

Define GDP:

A

The total market value of all final goods and services produced annually within a country’s borders

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2
Q

What is : Is the sum of the products of the prices (p) of all goods and quantities (Q) of those goods produced:

A

Gross Domestic Product
GDP= z(PQ)

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3
Q

What are the components that make up GDP and what are their relative contributions to the overall total?

A

Household = Consumption
Business = Investment
Government = Gov Purchases
Foreign = Net Exports

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4
Q

The sum of spending on durablegoods, nondurable goods, and services

A

Consumption

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5
Q

The sum of all purchases of fixed investment (business purchases of capitalgoods, such as machineryand factories, andpurchases of new residential housing) andchanges in businessinventories (changes in the stock of unsold goods)

A

Investment

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6
Q

Federal, state, and localgovernment purchases of goods and services, andgross investment

A

government purchases

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7
Q

Exports - imports

A

Net Exports

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8
Q

Total FOREIGN spending on domestic (U.S.) goods

A

Exports

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9
Q

Total domestic (U.S) spending on FOREIGN GOODS

A

imports

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10
Q

What is the Business Cycle

A

Recurrent swings (up and down) in the REAL GDP

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11
Q

Recurrent swings (up and down) in the REAL GDP

A

Business Cycle

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12
Q

4 phases of the BUSINESS CYCLE

A

PEAK
CONTRACTION
TROUGH
RECOVERY
EXPANSION

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13
Q

REAL GDP

A

The value of the entire output producedannually within a country’s borders, adjusted forprice changes
CALCULATE = BASE YEAR PRICES

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14
Q

ECONOMY: 2 MAJOR ACTIVITIES

A

BUYING SIDE= aggregate demand
Selling side = aggregate supply

FRAMEWORK: AD-AS

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15
Q

WHAT IS AD

A

AGGREGATE DEMAND

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16
Q

WHAT IS SRAS

A

SHORT-RUN AGGREGATE SUPPLY

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17
Q

WHAT IS LRAS

A

LONG RUN AGGREGATE SUPPLY

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18
Q

The quantity demanded of all goodsand services (Real GDP) at different price levels,ceterisparibus

A

AGGREGATE DEMAND

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19
Q

A curve that shows thequantity demanded of all goods and services (Real GDP) atdifferent price levels,ceteris paribus

A

AGGREGATE DEMAND CURVE

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20
Q

HOW DOES AGGREGATE DEMAND CURVE SLOPE DOWNWARD?

A
  • REAL balance effect
    -Interest rate effect
  • International trade effect
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21
Q

The change in thepurchasing power of dollar-denominated assets thatresults from a change in the price level.

A

real balance effect

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22
Q

The changes in household andbusiness buying as the interest rate changes (in turn, areflection of a change in the demand for or supply ofcredit brought on by price level changes).

A

interest rate effect

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23
Q

The change in foreignsector spending as the price level changes.

A

International trade effect

24
Q

AD CURVE SHIFT : CONSUMPTION AND INVESTMENT

A

CON.
- wealth
- expectations about future prices and income
-interest rate
- income taxes

investment:
- interest rate
- business taxes
expectations about future sales

25
Q

The quantity supplied of all goodsand services (Real GDP) at different price levels,ceterisparibus

A

short-run aggregate supply

26
Q

factors that cause SRAS to shift

A

wage rates prices of non-labor inputs
productivity
supply shocks

27
Q

factors sras shift RIGHT

A

wages DECREASE
price non-labor inputs DECREASE
product INCREASE

28
Q

A curvethat represents the output the economy produces whenwages and prices have adjusted to their final equilibriumlevels.

vertical line on graph

A

long run aggregate supply

29
Q

the labor market and their possibilities

A

recessionary gap
inflationary gap
long-run equilibrium

30
Q

labor market possibility:
The unemployment rate isgreater than the natural unemployment rate and a surplus exists in the labor market.

A

recessionary gap

31
Q

labor market possibility:
The unemployment rate is lessthan the natural unemployment rate and a shortage exists in the labor market.

A

inflationary gap

32
Q

labor market possibility:
The unemployment rateis equal to the natural unemployment rate and equilibrium exists in the labor market.

A

long-run equilibrium

33
Q

what are the 3 functions of money

A

store of value
medium of exchange
unit of account (liquid)

34
Q

factors:
store of value
medium of exhange
unit of account (is liquid)
what are these

A

functions of money

35
Q

what is
currency and checkable accounts
- commercial banks
savings and loans deposits
- credit unions and mutual savings bank

A

M1

36
Q

What are some of the largest items in the Federal Government’s current budget?

A

medicare
social security
defense spending
interest on debt

37
Q

budgets for what:
medicare
social security
defense spending
interest on debt

A

governments largest budget

38
Q

money definition:
An interest-earning account, at a commercial bank or thrift institution, that requires a minimum balance and offers limited check-writing privileges

A

money- market deposit account

39
Q

money definition:
An interest-earning account, at a commercial bank or thrift institution, from which funds can be withdrawn at anytime without a penalty payment

A

savings deposit

40
Q

money defintion:
An interest-earning deposit with a specified maturity date

A

time deposit

41
Q

units of money :
Jake has $1,537 in his checking account.

A

store of value

42
Q

units of money :
Jake writes a check for $1,299.

A

medium of exchange

43
Q

units of money:
Jake can easily determine that the price of the computer is more than the price of the vacation.

A

unit of account

44
Q

Which of the following most accurately describes indirect finance?

A

Lenders and borrowers interact through a financial intermediary.

45
Q

Which of the following most accurately describes direct finance?

A

The lenders and borrowers come together in a market setting.

46
Q

balance sheet:
assets

A

reserves
securities
loans

47
Q

balance sheet: liabilites

A

checkable deposts
bank capital
todal

48
Q

Why is real GDP a more accurate measure of an economy’s production than GDP?

A

Real GDP is not influenced by price changes, but GDP is.

49
Q

The horizontal axis of a diagram of the AD and AS curves measures which of the following?

A

An economy’s aggregate output

50
Q

The vertical axis of a diagram of the AD and AS curves measures which of the following?

A

An economy’s price level

51
Q

Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply.

A

A lower price level leads to a lower interest rate.

A higher price level decreases consumption through the substitution effect.

A higher price level makes domestically produced goods more expensive than foreign goods.

52
Q

Tax rate rises = tax revenue rises, reach maximum point
THEN fall with further increase in tax rates

A

Laffer Curve

53
Q

recessionary gap: unemployment

A

Real GDP < natural real
unemployment rate > natural unemployment

54
Q

inflationary gap : unemployment

A

real GDP > natural real
unemploymeny < natural

55
Q

The decrease in private expenditures that occurs as a consequence of increased government spending or the need to finance a budget deficit.

A

crowding out

56
Q

A banking arrangement that allows banks to hold reserves equal to only a fraction of their deposit liabilities.

A

federal reserve banking

Macroeconomics (5 decks)

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