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32 Cards in this Set
- Front
- Back
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what does the aggregate demand curve show?
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the AD curve shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, business, the government and the rest of the world
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why does the wealth effects of a change in the aggregate price level give the AD curve a downward slope?
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wealth effect: because of a higher aggregate price level reduces the purchasing power of households' wealth and reduces consumer spending
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why does the interest rate effects of a change in the aggregate price level give the AD curve a downward slope?
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interest rate: because a higher aggregate price level reduces the purchasing power of households money holdings, leading to a rise in interest rates and fall in investment spending and consumer spending.
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how do changes in expectations or changes in wealth shift the AD curve?
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if the real value of households assets rises then aggregate demand increases if it falls then AD falls
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which of these changes are positive demand shocks and which are negative demand shocks?
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if wealth shifts to the right it is a positive shock and vice versa
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what does the short run aggregate supply curve show?
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it shows the relationship between the aggregate price level and the quantity of aggregate output in the economy.
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how do sticky nominal wages affect the slope oF the SRAS curve?
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it is upward sloping because of nominal wages are sticky in the short run where a higher aggregate price level leads to higher profits and increased aggregate output in the short run.
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nominal wage
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is the dollar amount of the wage paid
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sticky wages
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are nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages.
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how do changes in commodity prices, changes in nominal wages, or changes in worker productivity shift the SRAS curve?
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changes in commodity prices fall then SRAS increases and vice versa.
changes in nominal wages fall then SRAS rises and vice versa. changes in productivity if they become more productive then SRAS increases and vice versa. |
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why do negative supply shocks pose a policy dilema?
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because it stabilizes aggregate output by increasing aggregate demand output by increasing aggregate demand will increase inflation, but a policy that stabilizes prices by reducing aggregate demand will deepen the output slump
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what is it meant by inflationary gap?
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when aggregate output is above potential output
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what is it meant by recessionary gap?
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when aggregate output is below potential output
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What are changes in government spending, changes in transfer payments, or changes in taxes the tools for implementing fiscal policy?
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expansionary fiscal policy can close a recessionary gap and increases disposable income to families by taxes being cut
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What types of fiscal policy changes have an expansionary effect on the economy (i.e. close a recessionary gap)?
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it increases the aggregate demand curve and closing the recessionary gap
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What types have a contractionary effect (i.e. close an inflationary gap)?
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by reducing aggregate demand
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Why are there significant time lags associated with determining the problem, developing the plan, and implementing the plan for fiscal policy decisions?
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realizing the recessionary/inflationary gap by collecting economic data takes time, when government develops a spending plan also takes time
and also when implementing the plan takes time as well. |
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What is the general formula (i.e. equation) for calculating each type of multiplier (i.e. government spending,
taxes, transfer payments)? |
government spending =1/MPS
taxes and transfer payments=MPC/MPS |
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Be able to calculate the equilibrium level of national income (Y*) for a given set of macro equations. Also, be able to show the equilibrium position on an AD/AS graph, determine the type of gap that exists, and determine an appropriate fiscal policy action to close the gap.
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Calculate the equilibrium level of national income (Y*) SHOW YOUR WORK!
Y=c+i+g Y=2500+.60(Y-500)+2000+4000+(500-1000) Y+2500+.60Y-300+2000+4000-500 Y=.60Y+7700 .40Y=7700 Y=19250 An increase in government expenditures (purchases and transfers) An increase to the right 1/.4=2.5 (20000-19250/2.5=$300 |
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What is the formula for calculating the Budget Balance? (i.e. Tx-G-Tr) Has the U.S. typically had a budget surplus or a budget deficit?
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Sgovernment=Tx-G-Tr
the US typically has a budget deficit |
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How do expansionary fiscal policy actions affect the budget balance?
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it makes the budget surplus smaller or the budget deficit bigger
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How do contractionary fiscal policy actions affect the budget balance?
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smaller gvnt pchs, smaller gvnt trsfrs, and higher taxes cause budget deficit and budget surplus to be smaller and increase the budget balance for the year
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What is the fiscal year for the U.S. government?
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the fiscal year for the US government starts in October 1st and ends in September 30th
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How large is the U.S. national (i.e. public) debt?
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$41619.97
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How is the national debt different from the budget deficit?
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budget deficit is when government spending is greater than revenue received for that year.
national debt is the debt of the national government (as distinguished from the debts of individuals and businesses and political subdivisions) |
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Are you concerned about the size of the national debt? Explain why or why not
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yes! because it keeps increasing and it doesnt look like it is lowering and it is really affecting our economy even tho we are not in a recessionary gap anymore, businesses are still hurting from it.
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Define exports and imports. What are net exports (i.e. the trade balance)?
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exports are goods and services that are being bought by other nations and imports are goods and services the US purchases and are brought to our nation.
net exports is the difference between exports minus imports. |
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What are the two major accounts in the balance of payments?
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they are current account and the financial account
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What is measured in each account?
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current account measures the balance of payments on goods and services together with balances on factor income and transfers
financial account measures the difference between the sales of assets of foreigners and its purchases of assets from foreigners during a given period |
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How do different interest rates in different countries affect the inflow and outflow of capital?
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it makes it easier when the equilibrium rate is above the capital inflow
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What is the exchange rate?
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the price at which currencies trade
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Define the terms appreciation and depreciation of a currency.
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appreciation is when a currency becomes more valuable, and depreciation is when a currency becomes less valuable
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