Econ Md 2

Front 1

ch.11 Why do we use the LM curve

Back 1

to examine the effects of monetary and fiscal policy and derive the AD curve

Front 2

11.1 what happens when there is a change in fiscal policy

Back 2

initial pt A (RA,YA). For an increase in govt spending, govt spending shifts the ISA curve to ISB and a new pt is reached B. ( RB,YB)

Front 3

what does an increase in govt spending cause

Back 3

the int rate increases which crowds out investment spending

Front 4

what is the crowding out effect

Back 4

the increase in govt spending causes the int rate to increase which crowds out investment spending

Front 5

what happens when there is a change in monetary policy

Back 5

Initial pt A (RA,YA). For an incrase in the money supply, money supply shifts the LMA to LMB. We reach a new pt B (RB,YB)

Front 6

what does the increase in the money supply cause

Back 6

the int. rate falls and invesment increases which increases output called the monetary transmissions mechanisms

Front 7

what is the monetary transmissions mechanisms

Back 7

the increase in the money supply causes the int. rate to fall and investment to increase which increases the output

Front 8

describe the interaction b/t monetary and fiscal policy map. initial pt

Back 8

1. initial pt A (RA, YA)

Front 9

what happens when there is an increase in tazes

Back 9

the ISA curve decreases and moves to ISB (RB, YB); new pt B

Front 10

what are the fed policy options

Back 10

no change in policy

Front 11

what happens where there is no change in policy, from pt B
LM

Back 11

if fed targets int rate, RA, then decrese the money supply LMA, to LMC

Front 12

what happens if the Fed targets output

Back 12

from pt b, if the Fed targets output YA, then they increase the money supply so LMA increases to LMD. we reach pt D (RD,YA)

Front 13

what cant the fed control

Back 13

the fed cant control the int rate and output

Front 14

what happens if you control R,
what happens if you control Y

Back 14

if you control r, you loose control over y.

if you control y, you loose control over r

Front 15

what shocks the goods mkt

Back 15

IS curve shifts

Front 16

what shocks the money demand

Back 16

LM curve shifts

Front 17

what is the AD curve

Back 17

quantity of goods and services demanded at various prices

Front 18

in the ISLM and AD graphs, what does pt A show

Back 18

the combination of (RA,YA,PA) for which there is an equilibrium in goods and moeny mkt

Front 19

what happens if the price level increases?

Back 19

PA increases to PB, the real money supply decreases wihich shits the LM(PA) to PB, we reach pt. B (RB,YB)

Front 20

what do the pts along the AD curve show

Back 20

they show combinations of (R,Y,P) for which there is an equilibrium in the goods and money mkt

Front 21

under the monetary graph (LM and AD), what happens when there is an increase in the money supply

Back 21

LMA shits for an increase in LMB

Front 22

what do changes in the money supply shift

Back 22

the AD curve

Front 23

under the fiscal (IS and AD), what happens when there is an increase in govt spending,

Back 23

GA increases to GB and shifts the ISA to an increase in ISB

Front 24

what doe changes in govt spending shift

Back 24

AD curve

Front 25

11.3 describe the ISLM & SR & LR equilibrium graph- LMA

Back 25

since YA is less than Y, AD is too low and prices shart to fall from PA to PB. which causes the real money suppply to increash which shifts LMA to LMB. we reach pt. B with (RB,Y)

Front 26

describe the LRAS, SRAS, P graph

Back 26

since YA is less than Y, AD is too low and prices fall from PA to PB and SRASA increases to SRASB. We reach pt B with (PB,Y)

Front 27

ch. 13 AD
how do prices stay in the long run? in the short run?

Back 27

in the long run, prices are fully flexible. in the short run, prices fail to adjust

Front 28

13.1 what do models of aggr. supply have in common

Back 28

a similar function

Front 29

what is the expectation of the future function and what doeach letter represent

Back 29

Y= Y(BAR) + X (P-EP)
Y=outupt
Y (BAR)=natural rate of output
P= price level
EP= expected price level
x is greater than 0 is always cconstant

Front 30

STAR IN BOOK

Back 30

LOOK AT STAR IN NOTEBOOK: IF EP=P

Front 31

what is the sticky price model aka

Back 31

keynesian model- prices slowly restore. EX: RESTAURANT

Front 32

what happens in the economy when firms adust their prices

Back 32

some firms adjust their prices slowly, while others adjust it quickly

Front 33

how do firms set ther prices

Back 33

they set prices based on their price expectations (EP)

Front 34

what does it mean by some prices are sticky

Back 34

slow to adjust in the short run

Front 35

over time, what doe firms do

Back 35

firms adjust thir price expectations

Front 36

what is imperfect information aka

Back 36

classical model, nothing is wrong in the market, not enough information. Once you getn the info, the prices change

Front 37

in what state is the price in inperfect information

Back 37

prices are flexible

Front 38

what happens when firms produce one or two products

Back 38

frims produce one or two products and are familiar with the price of their product but not overall price

Front 39

what happens over time

Back 39

over time, firms learn the overall price level and adjust hte price of their products