Unit 4- Short Answer and E.C.

Question 1

Deficit

Answer 1

The yearly difference where government spending exceeds government revenue

Question 2

Debt

Answer 2

(also known as National Debt, Federal Debt, Government Debt, Public Debt) the total of all the yearly deficits

Question 3

Foreign trade is supposed to work
Logic Chain

Answer 3

I (U.S.) ↑ → GDP (U.S.) ↑ → M (U.S.) ↑ → X(W) ↑ → GDP(W) ↑ → M(W) ↑ → X(U.S.) ↑ → GDP(U.S.) ↑…(cycle)

Question 4

Multiplier effect
Logic Chain

Answer 4

MPC= .9
Auto C↑→ GPD↑→ C↑→ GPD↑→ C↑→ GPD↑
$100B→ $100B→ $90B→$90B→$81B→$81B

Question 5

Monetary policy according to Keynesians

Answer 5

• In an Expansion (Inflation) * policy works
  MS ↓ → i rate ↑ →slow growth of “I”→ reduce multiplier effect→ slow the growth of GDP

In a Recession (unemployment) - policy likely doesn’t work
MS↑→ i rates↓→ “I” ↑ → set of possible multiplier effect→ GDP↑

Question 6

Monetarist view of the economy

Answer 6

Monetarist believe the number one economic problem is inflation.
They also believe government is bad.

Question 7

HW q5 was this problem good or bad at keysian policiy

Answer 7

If G is more than I then it is a good policy
(Gov spending is down more than inv spendign)

bad policy (negative number) gov spending is higher than inv spending

Question 8

Show how mathematically how to reduce the multiplier

Answer 8

Imports reduce the multiplier
closed : 1/ (1-mpc)
open: 1/ (mpc-mpm)

Question 9

Real business Cycle

Answer 9

Primary focus on the belief that Aggregate Supply changes before Aggregate Demand

Question 10

Supply-side

Answer 10

Primary focus on expanding Aggregate Supply at a faster rate

Question 11

Rational Expectations

Answer 11

Primary focus on People and Institutions as “Active Players” in the economy