Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ECON 203 > Topic 13- Aggregate Demand and Aggregate Supply > Flashcards

Topic 13- Aggregate Demand and Aggregate Supply Flashcards

1
Q

What is REAL gdp

A

holding prices fixed it is a measure in the changes of production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is an expansion

A

a period of rising real gdp

1) Total income INCREASING
2) Total Production INCREASING
3) Total employment INCREASING

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is a recession

A

a period of falling real GDP

Total Production, employment, and incomes are DECREASING

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Recession vs depression

A

two consecutive quarters of negative real gdp

depression: recession happening SEVERELY!!!!!!!!!!!!!!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What happens to inflation during expansion

A

HIGHER INFLATION

because more income, more employment, more demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What happens to inflation during recession

A

LOW inflation

because less incomes, less employment, less demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

does low inflation mean decreases in price level

A

not always, but it can mean that!!

USUALLY: slower increases in price level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what happens to employment during a recession

A

DECLINES!! you will see more of UNemployment rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What happens to unemployment rate after the end of a recession

unemployment rate= unemployed/labourforce

A

sometimes it STILL INCREASES BECAUSE:
1) firms dont hire people back fast
2) if labour force grows faster than employment, the unemployment rate higher
-discoruaged workers enter the LBF but unemployed!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the Aggregate Demand Curve

A

relationship b/w price level and the quantity of goods and services demanded

THIS is equal to the Y in Y=c+i+g+nx

HOLD EVERYTHING ELSE CONSTANT

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What causes a movement along the AD curve?

A

ONLY changes in price level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Why is the AD curve downward sloping

A

because the y-axis vbl is price level, and AD is equal to Y (GDP= sum of all expenditures)

When price level decrreases, Y (the sum of total expenditures) increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is AD curve composed of

A

C

I

G

NX

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Wealth Effect (Changes in C)

A

Wealth Effect (Changes in C)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the Wealthh Effect

A

Household wealth (cash) GAINS value with lower price level [u can buy more w lower prices]

Household wealth (Cash) LOSES value with higher price level [u can only buy less w higher prices]

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

If the Price Level goes down how does it impact REAL wealth

A

REAL WEALTH GOES UP

CONSUMPTION GOES UP

AD GOES UP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How does ‘I’ impact the AD CURVE

A

the interest rate effect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Interest Rate effect

A

Lower Price level increases real money supply BECAUSE causes a DECREASE in the interest rate!!!!!!!!!!1

lower int rate= lower cost of borrowing= more borrowing happening= more money supply

higher int rate= higher cost of borrinwg= les sborrowing=less money supply

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Which component of AD is immpacted by the real exchange rate effect

A

NX!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Real exchange rate effect/INTERNATIONAL TRADE EDDECT

A

lower price level in canada causes exports to rise and imports to fall, SO

lower price level= HIGHER NX!!!!!!

higher price level= LOWER NX!!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Real exchange rate effect/INTERNATIONAL TRADE EDDECT

A

lower price level in canada causes exports to rise and imports to fall, SO

lower price level= HIGHER NX!!!!!!

higher price level= LOWER NX!!!W

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is real exchange rate

A

price of dom goods in terms of foreign goods

e x P/ P *

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What 3 effects are the reason why the AD curve is downward sloping

A

interest rate effect (I)
wealth effect (C)
International trade effect/Real int rate effect (NX)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

what causes shifts in the AD curve

A

-changes in monetary and fiscal policies
-changes in the expectations of households and firms
-changes in foreign vbls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is monetary policy

A

actions the central bank takes to manage money supply

changing overnight int rate/ open market op

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How does change in monetary policy impact the AD curve

A

AD curvis is equal to Y=C+I+G+NX

When bank causes interest rates to fall, then more people want loans (MOVES AD CURVE TO RIGHT)

When bank causes interest rates to rise, then less people want loand (MOVES AD CURVE TO LEFT_

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is fiscal policy

A

changes in federal taxes by govt

28
Q

How does changes in fiscal policy impact AD curve (govt spending/purchases_

A

AD curve is Y=C+I+G+NX

When decrease in government spending/purchases, AD left

When increase in government spending/purchases, AD right

29
Q

How does fiscal policy impact AD curve (taxes)

A

Lower Personal income tax=increase consumption and investment= SHIFT RIGHT

higher personal income tax= ;pwer consumption and investment= SHIFT LEFT

30
Q

How does expectations affect AD curve
Households and firms

A

If expect future to be good, then increases consumption + investment today

31
Q

How does changes in foreign variables affect AD curve (When value of our dollar rises)

A

If the growth rate of foreign GDP decreases relative to domestic, then VALUE OF OUR DOLLAR RISES!!!!

This will increase imports!!1 means it will move AD curve to left

32
Q

How does changes in foreign variables affect AD curve (When value of our dollar FALLS)

A

when value of our dollar falls, because foreign gdp increases relative to domestic then

THIS WILL INCREASE EXPORTS AS PEOPLE WANNA BUY MORE HERE ISNCE ITS CHEAPER

MOVE AD CURVE TO THE RIGHT

33
Q

Aggregate Supply

A

It is upward sloping in the short term

It is vertical in the long term

34
Q

why is the aggregate supply curve vertical in the long run?

A

In the long run, level of real GDP (Y) is determined by inputs to production [LKHN] none of these measured on the y axis

In the long run changes in price level do not affect the quantity og goods or services produced

35
Q

what is the level of real GDP in the long run called

A

potential GDP
full employment GDP
natural level of output

36
Q

Natural Level of Output

A

the production of goods and services that an economy achieves in the long run when unemployment is at its natural rate

37
Q

Why would LRAS curve shift

A

any change in the natural level of output

CHANGE IN LABOUR KAPITAL NAT RES OR TECH

38
Q

Why is SRAS curve upward sloping

A

as the price level increases the quantity of goods and services firms are willing and able to supply increases

as price of final goods and services rise, prices of inputs rise slower!!

39
Q

Sticky Wage Theory

A

if the price level turns out to be HIGHER than expected & costs of production are constant, then firms will EXPAND! increasing REAL GDP

if the prive level turns out to be Lower than expected & costs of production are constant, then firms will CONTRACT, decreasing REAL GDP

40
Q

what is a stick ywag

A

when wages do not respond quickly to changes in demand or supply

41
Q

how can a wage be sticky

A

beacuse of contracts (i.e. unions can make wages be fixed by contract for several years)

42
Q

STICKY PRICE THEORY

A

the costs to firms of changing prices are MENU costs (expensive bc printing new menus/catalogues)

menu costs make some prices stick to where they are at and not responsive!!!

43
Q

why does sticky price theory actually help firms

i.e. when price level is higher than expected

A

some firms do not wanna increase prices bc of menu costs (Extra expense) so they will KEEP old prices

prices stay the same, then more people wanna buy the cheaper good, more produced ,more employed

44
Q

why does sticky price theory actually HURT firms

i.e. when price level is lower than expected

A

some firms may NOt adjust prices down to avoid menu costs (ADDED EXPENSE)

this higher price means sales decrease, and then productiona nd employment decrease

45
Q

what factors can shift the SRAS

A

levels of input to production: lbaour, capital, nat res, tech

and the EXPECTED PRICE LEVEL!!!!!!!!!!!!!!!!!!!!!!! (THIS will influence what prices are stuck, wages are stuck, and perceptions about relative prices)

46
Q

As fop increase, what happens to SRAS curve

A

move to the right!

47
Q

AS fop decrease what happens to sras curve

A

move to the left

48
Q

As tech increases what happens to sras curve

A

shift to the right

49
Q

If firms expect price level to increase in the future

A

THE SRAS CURVE SHIFT LEFT to reflect the expected cost increase

50
Q

if workers and firms are ADJUSTING to the price level being lower than expected, how does SRAS move

A

TO THE RIGHT!

51
Q

if workers and firms adjusting to the price level being higher than expected, how does SRAS move

A

to the left

52
Q

supply shock

A

unexpected event that causes sras curve to shift

53
Q

unexpected input price decreases (supply shock) impact on sras

A

shift right

54
Q

unexpected input price increases (supply shock) impact on sras

A

shift left

55
Q

in supply and demand questions of aggregate demand, where doe sthe economy begin

A

with LRAS in the middle, and SRAS and AD intersecting when they are directly on top of the LRAS curve!!

56
Q

where is longrun macroeconomic equilbrium found?

A

ALOGN THE LRAS CURVE!!!!!!

57
Q

How to determine effects on macroeconomic equilibrium?

A

1) which curve is moving? AD curve or AS curve
2) which way does the relevant curve shift?
3) what happens to the equilbrium in the short run and long run equilibrium?

58
Q

What happens inthese macroecoomic equilbriuum problems?

(when something is not impacting LRAS curve)

A

either AD curve shift or AS curve shifts

the other curve shifts to compensate

and equilbrium is found along the LRAS curve!!!!!!!

59
Q

what happens in these macroecnomic equilibrium problems when something is impacting the LRAS curve?

A

either AD curve shifts or AS curve shifts

the LRAS curve moves to compensates and changes the capticty of the economy to produce in the long run

60
Q

The short-run aggregate supply curve slopes upward because wages
and prices are sticky and workers and firms fail to predict accurately
the future price level

A

The short-run aggregate supply curve slopes upward because wages
and prices are sticky and workers and firms fail to predict accurately
the future price level

61
Q

In short-run macroeconomic equilibrium, the aggregate demand and
short-run aggregate supply curves often intersect at a point off the
long-run aggregate supply curve

A

In short-run macroeconomic equilibrium, the aggregate demand and
short-run aggregate supply curves often intersect at a point off the
long-run aggregate supply curve

62
Q

IN long run economic equilbriumg

A

AD and AS intersect at a point on the LRAS curve

63
Q

If short-run equilibrium occurs at a point beyond potential GDP,
wages and prices rise, and the short-run aggregate supply curve shifts
to the left until potential GDP is restored

A

If short-run equilibrium occurs at a point beyond potential GDP,
wages and prices rise, and the short-run aggregate supply curve shifts
to the left until potential GDP is restored

64
Q

long run equilbrium ofund along

A

the LRAS curve!

65
Q

short run equilbrium found along

A

not always the LRAS CURVE

ECON 203 (16 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions