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AP Macroeconomics Keller
Terms in this set (72)
What shows an increasing opportunity cost when more of a good is produced?
Produvtions possibilities curve
What's the formula for the nation unemployment rate?
Number of unemployed (seeking employment) / nations labor force
What's required for someone to be considered unemployed?
Actively looking for a job
What's an example of frictional unemployment?
When you are looking for your first job after you graduate college
What does an increase in discourage workers cause?
A decrease in unemployment and a decrease in the labor force participation rate
What does new technology create?
A positive supply show and a lower price level
What increases real GDP and increases nominal interest rates?
An expansionary fiscal policy
Decreasing government spending will ____________.
Reduce the price level
Increasing government spending will ____________.
Increase the interest rate
What will happen if policy makers use fiscal policy to reduce inflation?
Unemployment will increase in the short run
What will higher interest rates do?
Decrease private investment in plant and equipment
What will an increase in investment cause?
Real interest rates to increase
What is crowding out caused by?
An increase in government borrowing, which increases interest rates, which lowers private investment spending
Selling government bond will _______ the price level
What would the open-market operation by the central bank to reduce unemployment rate be?
To buy bonds, which would decrease the interest rate, which increases aggregate demand
What happens to the money supply when the federal reserve sells bonds to banks?
What happens to the money supply when the central bank buys bonds on the open market?
What will a tight monetary policy cause?
And increase in interest rate and a decrease in private investment
What will and open market purchase of government bonds cause?
An increase in aggregate demand
What is economic growth measured by?
An increase in per capita real GDP
Decreasing income taxes ________ economic growth
Decreasing interest rates ________ economic growth
Increasing investment ________ economic growth
What does the long run Phillips curve show?
No trade-off between inflation and unemployment
What would an unanticipated increase in government spending cause?
A movement to higher point on the short run Phillips curve
What will changes in aggregate demand cause?
Movement to a different point on a stationary short run Phillips curve
What will changes in aggregate supply cause?
The short run Phillips curve to shift to the left or right
What does an increase in both inflation and unemployment cause?
A rightward shift of the short run Phillips curve
What will happen to the price of previously issued bonds and the price level if the government borrows more money?
The price of previously is your bonds will decrease and the price level will increase
What will happen to the budget and the national debt if a country increases transfer payments without increasing taxes?
The budget will move into deficit and the national debt will increase
What happens when a government increases the budget deficit?
Interest rates will increase if nothing else changes
What does the central bank then to do in order for interest rates to stay the same?
The central bank needs to increase the money supply
What is the exchange rate?
The price of one currency in terms of another
In the market for US dollars, what happens if Korean products become popular in the US?
Supply of US dollars will increase
What happens if the central bank of the US sells government bonds?
Value of the US dollar will increase and exports will decrease
What happens if foreign investors think a country is no longer a safe haven?
Country's currency will deprecate
What's the formula for the GDP deflator?
Nominal GDP / real GDP X 100
What does the GDP deflator show?
The changes in prices not quantity of output
What's the formula for real GDP?
Nominal GDP / GDP deflator
What's more valuable money received today or money received in the future?
Money received today
price decreases, quantity increases
price increases and quantity decreases
price increases and
price decreases, quantity decreases
What will happen if the government reduces business taxes?
Short run aggregate supply will shift to the right
What will happen to an anticipated expansion of the money supply in the long run?
Increase in nominal GDP and the price level
What happens if consumers and firms become more optimistic about future income and profit?
Aggregate demand will shift to the right causing an increase in real output and the price level
What can cause a recession?
Decrease in aggregate demand
What one increase in aggregate demand cause if a country is in long run equilibrium?
Priced level will increase
What will government investment in human capital cause?
The aggregate demand curve will shift to the right in the short run and the aggregate supply curve will shift to the right in the long run
What category of GDP does an increase in inventory fall into?
What does an increase in inventories indicate?
An impending recession resulting from a decrease in consumption
What can cause real GDP to increase in the long run?
Technical progress, investment in human capital, discovery of new natural resources, decrease in corporate taxes, increase in factor productivity
What causes real GDP to grow faster than the population?
An increase in real GDP per capita
What is equal to money supply times velocity?
Price level times real GDP
How do you get the maximum change in money supply?
Subtract the required reserves from the amount deposited and multiply by the multiplier (1/rr)
What will a decrease in the required reserve ratio cause?
What is the result of a decrease in taxes?
An increase in nominal GDP
How much has the inflation rate changed if the consumer price index increases from 100 to 150?
The inflation rate increases by 50%
Why doesn't the consumer price index not measure the true cost of inflation?
The improvements in the quality of goods or services are not fully reflected
What causes demand-pull inflation?
An increase aggregate demand
Leaders benefit from ___________.
Why does the demand for money increase when nominal GDP increases?
The price level increases
Expected inflation + real interest rate = _____________
Nominal interest rate
What causes the economy's real output to increase in the short run?
Demand pull inflation
What causes the economy's real output to decrease in the short run?
Cost push inflation
What happens when an American company sell a product overseas?
It causes the current amount to increase
A _____ in the current account is financed but a surplus in the ________ account.
What item does a country export?
The item it can produce at the lowest opportunity cost.
MPC + MPS =
What's used to calculate the change in GDP?
The spending multiplier.
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