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35 Cards in this Set

  • Front
  • Back
Aggregate Demand is the function of what 3 variables?
1. interest rates
2. real income Y
3. price level P
Why is the Aggregate demand curve downward sloping?
because there is a negative relationship between P and real income Y due to the interaction between the money and goods markets, assuming G,T,Ms remains constant
What is true along the AD curve?
1. all points are equilibrium points in both $ and goods markets
2. we assume there is no change in fiscal or monetary policy to change P, and Ms, T, G are all constant
What shifts the AD curve?
Which way?
1. change in fiscal policy
2. change in monetary policy

expansionary shifts R
contractionary shifts L

a change in C or I unrelated to policy also shifts AD
Who tracks the capacity utilization rate?
What is the average over last 25 yrs?
the Fed
Why is full capacity utilization not healthy for the economy?
1. work cannot be sustained
2. wages will increase and put presusre on prices leading to inflation
What shifts aggregate supply?
1. cost shocks
2. economic growth/deterioration
3. supply side economic policies
4. natural disasters/good weather
what shifts aggregate supply to the right?
1. lower costs (input prices, wages)
2. economic growth (more capital, labor, tech)
3. Public policy (tax cuts, deregulation)
4. good weather
what shifts aggregate supply to the left?
1.higher costs
2.stagnation(capial deterioration)
3.public policy(waste, inefficitency, overregulation)
4.bad weather, natural disasters, destruction from wars
when is the Long run aggregate supply curve vertical?
if wage reates and other costs fully adjust to changes in P
(potential GDP- sustainable GDP in the long-run)
how long are policy lags for monetary policies vs. fiscal policies
inside(monetary=short, fiscal=long)
what is inflation initiated by aggregate demand?
Demand-Pull inflation (an increase in Ms or Consumer confidence)
what is inflation initiated by aggregate supply?
Cost-push or supply-side inflation (increase in costs or stagflation which is decreased output with increase in P) pg 276
What must increase to sustain long run growth?
1.number of hours worked and/or more workers
2.amount of capital or quality of capital
what is compartive advantage?
Neoclassical economic theory=all parties benefit from free trade and specialization
what are the three trade barriers?
2.export subsidies
what is the goal of tariffs?
to make imports domestically more expensive, reduce demand for imported goods
who pust out tariffs rates on all products?
International Trade Commission ITC
What is dumping?
when a firm/industry sells product on world market at or below cost in order to drive out competition and then raise prices
who considers dumping illegal?
GATT general agreement on tariffs and trade

US + 22 countries
what are three reasons a country would impose protectionist measures domestic jobs
2.other country's usage of unfair trade practices like dumping to allow infant industries to survive
who are the demanders of a currency
3.purchasers of stocks and bonds
5.traders who anticipate a depreciation
factors that affect exchange rates/ shift S and D curves
1.change in price level
2.change in interest rates
how are inflation and currency value related?

how are interest rates and currency value related?

higher r=appreciation
lower r=depreciation
who measures and reports GDP?
how often?
quarterly by BEA
when does crowding out occur?
expansionary fiscal policy
who measures UE and how often reported?
BLS monthly
what does the natural rate of unemployment correspond to?
potential GDP-level of output at LRAS
What two things measure inflation?
GDP deflator and CPI
GDP deflator
nominal GDP/real GDP X 100
Who measures and reports inflation rate changes?
BLS monthly
the largest public holder of us debt is
the social security trust fund
link from money to goods market
is the discount rate greater or less than fed funds rate