Upgrade to remove ads
Terms in this set (119)
What is time inconsistency and how does it affect the phillips curve?
Long-run Phillips curve to be farther left than otherwise
If saving is greater than domestic investment, then there is a trade..
Surplus and Y > C + I + G
Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. In the short-run the effects of the housing and financial crises...
Reduce the inflation rate and raise the unemployment rate
If the Federal Reserve decided to raise interest rates, it could...
Sell bonds to lower the money supply
Other things the same, if the U.S. price level falls, then U.S. residents want to buy..
More forigen bonds, the real exchange rate falls
Which of the following decreases inflation and increases unemployment in the short run?
Either a decrease in government expenditures, but not a decrease in the money supply growth rate
Which of the following correctly explains the crowding-out effect?
An increase in government expenditures increases the interest rate and so reduces investment spending.
Shifts in aggregate demand affect the price level in...
Both the short and long run.
A U.S. company uses pound sterlings it already owned to purchase bonds issued by a company in Germany. Which of these countries has an increase in net capital outflow?
Neither Germany nor the U.S.
If a country experiences capital flight, which of the following curves shift right?
The demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange.
According to the Phillips curve, unemployment and inflation are positively related in....
Neither the long run nor the short run
When wages are fixed by contract, inflation reduces..
Real wages; this likely makes labor markets more flexible
Recessions come at...
Irregular intervals. During recessions investment spending falls relatively more than consumption spending.
According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they..
Decreased the money supply.
If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is...
Greater than the quantity demanded and the dollar will depreciate.
a period of declining output and rising prices
A favorable supply shock causes the price level to..
fall. To counter this a central bank could increase the money supply.
Which of the following is most commonly used to monitor short-run changes in economic activity?
Other things constant, which of the following would increase unemployment and reduce inflation?
Businesses become pessimistic about the future of the economy.
Suppose there are both multipliers and crowding out effects but without any accelerator effects. An increase in government expenditures would..
Shift aggregate demand right by a larger, equal, or smaller amount than the increase in government expenditures.
Can be described either in terms of the money supply or in terms of the interest rate.
If the stock market crashes, then..
Aggregate demand decreases, which the Fed could offset by purchasing bonds.
Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level?
The shift of aggregate demand, but not the shift of aggregate supply.
At the equilibrium real interest rate in the open-economy macroeconomic model...
net capital outflow + domestic investment = saving.
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand?
Net exports would fall which by itself would decrease U.S. aggregate demand.
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. What would happen to the dollar?
It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.
When society gets the most it can from its scarce resources, then the outcome is called..
A circular-flow diagram is a model that..
Helps to explain how the economy is organized.
The opportunity cost of an item is..
What you give up to get that item.
Trade between countries..
Allows each country to consume at a point outside its production possibilities frontier.
Assume, for Brazil, that the domestic price of apples without international trade is higher than the world price of apples. This suggests that, in the production of apples,
Other countries have a comparative advantage over Brazil and Brazil will import apples.
Spain is an importer of computer chips, taking the world price of $11 per chip as given. Suppose Spain imposes a $3 tariff on chips. Which of the following outcomes is possible?
The price of chips in Spain increases to $14; the quantity of Spanish-produced chips increases; and the quantity of chips imported by Spain decreases.
If an economy's GDP falls, then it must be the case that the economy's..
Income and expenditure both fall.
Which of the following is included in GDP?
Both the market value of rental housing services and the market value of owner-occupied housing services
The price index was 105 in Year 1 and 111 in Year 2. What was the inflation rate?
Suppose the consumer price index was 184 in Year 1 and 198.17 in Year 1. The nominal interest rate during this period was steady at 5.8 percent. What was the real interest rate during this period?
In determining living standards, productivity plays a key role for..
Both nations and individuals.both nations and individuals.
Consider a closed economy. If national saving is greater than zero, which of the following must be true?
Y - C - G > 0
Consider the expressions T − G and Y − T − C. Which of the following statements is correct?
The first of these is public saving; the second one is private saving.
In the long run, the unemployment rate equals...
The natural rate of unemployment.
Suppose that a large number of people who used to work or seek work no longer do either. Other things the same, this makes..
both the number of people unemployed and in the labor force fall.
above‐market wages paid by employers in order to improve the productivity of their workforcencrease productivity but increase unemployment.
If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate..
$10,000 of money
The price level is a..
If velocity = 8, the quantity of money = 2,300, and the price level = 2.25, then the real value of output is approximately..
The nominal interest rate is 6 percent and the real interest rate is 4 percent. What is the inflation rate?
100 x (cost of basket in current year/cost of basket in base year)
(CPI new year) - (CPI last year) / (CPI new year)
GDP deflator calculation
Nominal GDP/Real GDP x 100
real interest rate equation
nominal interest rate - inflation rate
GDP = C + I + G + NX
tax / transfer payments
marginal propensity to consume
If S is national savings, then S =
Private Saving Equation
Public Saving Equation
national savings equals
public + private savings
T - G
G - T
labor force participation rate formula
labor force/working age population x 100
unemployment rate formula
number of unemployed/labor force x 100
money multiplier formula
1/R (reserve ratio)
total assets / capital
real wage rate
the wage rate adjusted for inflation ( w / p )
money supply formula
M = C + D (currency + deposit demands)
( P * Y ) / M
Net exports is equal to
Net Capital Outflow (NX = NCO)
I + NCO
real exchange rate formula
(nominal exchange rate x domestic price)/foreign price
Purchasing Power Parity (PPP)
The amount of money needed in one country to purchase the same goods and services in another country
nominal exchange rate = foreign prices / domestic prices
What happens when the fed BUYS a bond
increases money supply in economy, lowering interest rate
What happens when the fed SELLS a bond
lowers money supply in economy, raising interest rate
a large sudden reaction in the demand for assets located in a country
Market for loanable funds
real interest rate adjusts to balance supply (from national saving) and demand (for domestic investment + net capital outflow)
Market for foreign currency exchange
real exchange rate adjusts to balance the supply (from net capital outflow) and demand for dollars (for net exports)
period of declining real income + rising unemployment
a severe recession
Natural level of output
the production of goods and services an economy achieves in the long run with employment at a normal rate
The aggregate demand curve
tells us the quantity of goods and services demanded at a given price level
Why the demand curve slopes downward?
Wealth effect, Interest-rate effect, and the Exchange rate effect
decrease in prices raises real value of money and makes consumers wealthier, so they spend more
lower prices reduce interest rate which encourages greater spending
Exchange rate effect
price level falls, declining real value of a dollar. This depreciation stimulates net exports, raising demand
The aggregate supply curve
tells us the total quantity of goods and services firms sell at any given price level
The aggregate supply curve in the long-run?
an unexpectedly low price level raises the minimum wage, causing firms to hire fewer workers and produce a smaller quantity of goods and services
an unexpectedly low price level leaves some firms with higher than desired prices, depressing their sales and leading them to cut back production
currency, demand deposits, travelers checks, other checkable deposits
everything in M1, savings deposits, small time deposits, money market mutual funds, a few minor categories
how easily is an asset converted to cash?
Liquid assets include?
currency, demand, deposits...
Non-liquid assets include?
long-term bonds, real estate
Natural rate of unemployment
the normal rate of unemployment around which the actual unemployment rate fluctuates
occurs when workers spend time searching for the job that best suit their skills and tastes, short term for most workers(there are jobs but takes time to form matches) ~inevitable~
occurs when there are fewer jobs than workers, usually longer term(there are not enough jobs)
the deviation of unemployment from its natural rate, associated with business cycles
The Money Supply
quantity of money available in the economy = money multiplier x bank reserves
The fed can increase money supply by....
buying a bond, and decrease money supply by selling a bond
When the fed increases money supply...
interest rates fall
When the fed decreases money supply...
interest rates rise
(quantity) x (prices in current year)
(quantity) x (prices in base year)
Theory of liquidity preference
interest rates adjust to bring money supply and demand into balance
the setting of the level of government spending and taxation by government policy
the additional shifts in aggregate demand that result from expansionary fiscal policy increases income, thereby increasing consumer spending
offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending
changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action
Phillips Curve(Long Run)
a vertical line that illustrates that there is no permanent tradeoff between inflation and unemployment in the long run
Phillips Curve (short run)
a vertical line that illustrates that there is a permanent tradeoff between inflation and unemployment in the long run
capital consists of human-created assets that can enhance one's power to perform economically useful work
Cambridge IGCSE Business Studies
Karen Borrington, Peter Stimpson
467 expert-verified explanations
Gary E. Clayton
703 expert-verified explanations
Principles of Economics
848 expert-verified explanations
Explorations in Economics
1,281 expert-verified explanations
OTHER QUIZLET SETS
history of psychology final exam
Ch. 1-3 Animal Farm Test
MSE 2060 - Prelim 2 Diffraction Quiz Questions (22…