Macro Test 1

Front 1

Keynesian model believes

Back 1

Keynesian model believes that the economy does not really work well and requires government intervention.

Front 2

Classical Model believes

Back 2

Classical model believe that the economy works fine and looks at long run.

Front 3

What is inflation?

Is inflation good or bad?

Back 3

The rate of change in prices.

Inflation can be good or bad, but it is typically seen as bad. If wages and laborers typically kept up with the rate of inflation then inflation would not be a bad thing.

Front 4

What causes inflation?

Back 4

- Printing more money
- Monetary growth
- Inflation is a monetary phenomenon

Front 5

What is the natural rate of unemployment?

Back 5

We cannot ever possibly get 0% unemployment, but overtime the natural rate is 5-6%

Front 6

Relationship between inflation and unemployment

Back 6

You can find places where inflation and unemployment are inversely related, but you cannot have both low in the short run.

Front 7

Monetary Policy

Back 7

When the federal government changes the supply of money.

Front 8

Fiscal Policy

Back 8

Things that deal with the budgeting of the government such as taxes and spending.

Front 9

Relationship between prices and wages.

Back 9

In the short run wages and prices don't necessarily move together, but in the long run they do typically move together.

Front 10

Real Interest Rate

Back 10

i - inflation. If I put money into a savings account at 10% but inflation is 5% then the real inflation rate is 5%.

Front 11

How are risk and interest rates related?

Back 11

Risk and interest rates should be positively related.

Front 12

Proportional Tax Theory

Back 12

Everyone pays the same rate regardless of how much they make.

Front 13

Progressive Tax Theory

Back 13

The more you make, the higher tax bracket/percentage you will pay.

Front 14

Regressive Tax Theory

Back 14

The less you make the higher tax rate you pay.

Front 15

4 Major Players in the Economy

Back 15

Households, business, government, and foreign sector.

Front 16

Households

Back 16

Supply factors of producition, earn income, pay taxes off the top, spend, and save.

Front 17

Business

Back 17

Hire factors of production and use those to produce goods and services and they invest.

Front 18

Government

Back 18

Tax and spend -- Promote stable economic environment

Front 19

Foreign Sector

Back 19

Imports, exports (the difference between these two is the balance of trade.

Front 20

C

Back 20

Consumption

Front 21

S

Back 21

Savings

Front 22

I

Back 22

Investments

Front 23

G

Back 23

Government expenditures

Front 24

T

Back 24

Taxes

Front 25

TR

Back 25

Transfer Payments

Front 26

Y

Back 26

GDP

Front 27

Y^D

Back 27

Aggregate Demand = C + I + G

Front 28

Y^S

Back 28

Aggregate supply

Front 29

Y^disp

Back 29

Disposable income = Y - NT = Y- T + TR

Front 30

P

Back 30

Price Index

Front 31

i

Back 31

Interest rate

Front 32

M

Back 32

Money Supply

Front 33

Endogenous-

Back 33

A variable that we will solve for such as GDP.

Front 34

Exogynous

Back 34

Predetermined variable from outside of our model

Front 35

*

Back 35

Used to indicated equilibrium

Front 36

The Money Illusion

Back 36

The tendency of people to think of money in nominal terms instead of real terms.

Front 37

Long Term Labor-

Back 37

Escalator clauses do not work backwards. If inflation goes down, wages should go down as well, but they don't.

Front 38

Signal Extraction Problem

Back 38

We don't know if inventory build up is temporary or permanent. Businesses won't drop prices if they don't know what is going to happen.