Terms in this set (43)
Define short run.
input prices inflexible, upsloping aggregate supply
Define long run.
input prices fully flexible, vertical aggregate supply
How does the short-run aggregate supply curve look on a graph?
movement along the short run AS curve as prices increase or decrease
In terms of aggregate supply, the difference between the long run and short run is that in the long run, what happens?
In the long run, all things move back to equilibrium. long run aggregate supply is a vertical line
In the absence of unexpected shocks, what will the economy tend to experience?
positive growth with mild amounts of inflation
The traditional Phillips Curve suggests a trade-off between?
inflation and unemployment
higher rates of inflation and higher rates of unemployment
What allegedly contributed to the stagflation in the mid-1970s?
quadrupling of oil prices by OPEC
When does Disinflation occur?
a reduction in the inflation rate from year to year. occurs when the increase in the "consumer price level" slows down from the previous period when the prices were rising.
What type of economics is the Laffer Curve a central concept in?
A basic criticism of supply-side economics is?
Some economists feel that the impact of a tax cut on incentives is too small to matter or takes too long to occur. They feel that the demand-side effects of tax cuts are more effective
What did unemployment and inflation look like the last few years in the 1990s in the United States?
the Clinton administration increased the highest marginal tax rates in an attempt to pay down those deficits
Inflation in the U.S. economy tends to be?
ongoing, as increases in aggregate demand outpace increases in aggregate supply
The mainstream view is that macro instability is caused by?
instability in the economy comes from two different sources: the inability of prices to change in the short run (price stickiness) and unexpected shocks to aggregate demand or short run aggregate demand.
Economist Milton Friedman is most closely associated with what view that causes Macro instability?
What do Monetarists believe in regards to velocity?
Monetarists feel that velocity, or spending, is relatively stable, which is not to say it is always the same. They feel it has trended up over the decades. Their position is that the percentage of spending versus saving compared to GDP (PV) stays consistent over time.
The basic equation of monetarism is?
called the "equation of exchange" and is defined as the supply of money times the velocity at which the money is spent equal to the price level times the physical volume of all goods and services produced. (MV=PQ)
Define the velocity of money.
The rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time
According to monetarists, the Great Depression in the United States largely resulted from?
inappropriate monetary policy
What do mainstream economists question in the new classical assumption about wages and prices?
Mainstream economists argue that prices and wages are downward inflexible over long periods of time, and due to that fact, it may take fiscal and monetary policy to help the economy recover quickly
What types of policies do mainstream economists favor?
fiscal and monetary
In the equation of exchange what does V indicate?
the velocity of money
Monetarists say that the relationship between the amount of money that households and businesses want to hold and the level of national output and income is stable or unstable?
The view that inappropriate monetary policy was the main reason for the depth of the Great Depression in the United States is most closely associated with what macro instability view?
Define efficiency wage.
based on the idea that higher wages make more efficient workers and therefore are actually more cost-effective
Who are outsiders in the insider-outsider theory?
U.S. exports of goods and services (on a national income account basis) make up how much of the US GDP?
The United States' most important trading partner quantitatively is?
Define comparative advantage.
Under comparative advantage, the country can produce the good at a lower opportunity cost, which measures what must be given up to produce it
What do export supply curves and import demand curves look like on a graph?
When the world equilibrium price is above the domestic equilibrium price, there would be an export surplus as suppliers would produce more than that demanded by the domestic economy and would then export it to receive the higher world price.
If the world equilibrium price is less than the domestic equilibrium price, the opposite effect occurs.
Define tariffs and what are tariffs used for?
tariff is an excise tax on the dollar value, or quantity of an imported good. Used to restrict trade
Define revenue tax.
Revenue tariffs are applied to a good that is typically not produced in the domestic country, and they are designed to raise revenue for the domestic government. Revenue tariffs tend to be fairly low.
Define protective tax.
are applied to goods that do have a domestic competitor and are designed to make the imported goods cost at least as much as, or more than, the domestic good, so these tariffs can be quite high.
Define dumping as it's related to international trade.
occurs when a foreign firm deliberately sells goods below their cost in an attempt to drive the domestic industry out of business. Once the domestic industry is gone, the foreign firm is then free to raise prices to whatever level they desire. This may even be done with the support of the foreign government. Dumping is considered an "unfair trade practice," and sanctions can be imposed against the countries or firms involved.
Why was the World Trade Organization established?
The WTO is the largest organization devoted to promoting international trade.
How many countries belong to the World Trade Organization, as of 2013?
The World Trade Organization was established as a successor to?
The General Agreement on Tariffs and Trade (GATT)
Define the "Eurozone".
A geographic and economic region that consists of all the European Union countries that have fully incorporated the euro as their national currency.
How many European nations belong to the European Union?
"NAFTA" stands for?
North American Free Trade Agreement
What is Trade adjustment assistance used for?
provides financial assistance beyond unemployment benefits, relocation allowances, and retraining services
the practice of basing some of a company's processes or services overseas, so as to take advantage of lower costs.
According to mainstream macroeconomists, US macro instability has resulted from?
investment "booms" and "busts" and, occasionally, adverse aggregate supply shocks