3 main questions of macroeconomics
-What is produced?
-How is it produced?
-Who gets it when it is produced?
Production Possibilities Curve (PPC)
If all resources are used than we are located on the line. If not all resources are used than we are below the curve.
What is Demand?
the amount of a good or service you're willing and able to buy at different prices
What is the Law of Demand?
inverse relationship between price and quantity.
-As Price level increases, Quantity decreases
Things that shift the entire Demand curve:
1)Tastes and Preferences
3)Income (of consumers)
Things that shift the entire Supply curve:
1)Natural and Manmade Phenomenon
5)Profitability of alternate goods in supply
6)Profitability of goods in joint supply
Gross Domestic Product (GDP)
the total dollar value of all goods and services produced in a country in 1 year
Gross National Product (GNP)
the total dollar value and all goods and services produced by a country in 1 year
Where does GNP come from?
the entire world. Anything made by American companies both inside and outside the country.
Problems (Short comings) w/ GDP
1) underground economy (black market)
3) More leisure time
Too many dollars chasing too few goods; increase in demand for goods increases the price level
individuals who argue for in increase in government spending as the best use of the budget surpluses justify this option in part based on its beneficial effect on household incomes and consumption in the economy
The public debt is the sum of all previous...
budget deficits minus any budget surpluses of the Federal Government
Functional finance is the view that the primary purpose of Federal finance is to stabilize the economy, and that the problems associated with consequent deficits or surpluses are of secondary importance
The crowding- out effect from government borrowing to finance the public debt is reduced when
public investment complements private investment
Even if the social security surpluses are excluded from the projected bedget surpluses form 2000 to 2010, the accumulated surpluses are still projected to be
a major reason that a public debt cannot bankrupt the Federal Government is because
the public debt can easily be refinanced
Incurring an internal debt to finance a war does not pass the cost of the war on to future generations because
the opportunity cost of wartime expenditures was borne by the generation that lived during the war
Which was a concern with the Federal deficit and the public debt in the first half of the 1990's
the absolute size of Federal deficits and public debt had increased substantially
The size of recent annual Federal budget surpluses may be overstated because they include items such as the social security surplus
A large public debt will not bankrupt the Federal government because it can refinance the debt or increase taxes to pay it
A cyclically balanced budget philosophy would call for what during a period of high inflation
higher taxes and less government spending
Historically, growth of the public debt has been primarily caused by the deficit financing of wars and recession
A major problem with a cyclically balanced budget is
the upswings and downswings of the business cycle may not be of equal magnitude or duration
One important consequence of the public debt in the United States is that
it transfers a portion or real output to foreign nations
Assume that the multiplier is 2. If the amout of saving done at full employment increased by $12 billion and the amount of private borrowing increased by $5 billion then to maintain full employment, the public debt would have to increase by
Before the Great Depression, the budget philosphy that was most generally accepted was
an annually balanced budget
What is Velocity of money?
the number of times per year the average dollar is spend on final goods and services