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46 Cards in this Set
- Front
- Back
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Business Cycle
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alternating periods of economic expansion and economic recession
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Long-run economic growth
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the process by which rising productivity increases the average standard of living
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Labor Productivity
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the quantity of goods and services that can be produced by one worker or by one hour of work
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Capital
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manufactured goods that are used to produce other goods and services
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Potential GDP
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the level of real GDP attained when all firms are producing at capacity
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Financial system
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the system of financial markets and financial intermediaries through which firms acquire funds from households
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Financial markets
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markets where financial securities,such as stocks and bonds, are bought and sold
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Financial intermediaries
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firms, such as banks, mutual funds, pension funds, and insurance companies, that borrow funds from savers and lend them to borrowers
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Market for Loanable funds
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the interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged
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Crowding out
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a decline in private expenditures as a result of an increase in government purchases
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Industrial Revolution
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the application of mechanical power to the production of goods, beginning in England around 1750
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Economic growth model
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a model that explains growth rates in real GDP per capita over the long run
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Technological change
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a change in the quantity of output a firm can produce using a given quantity of inputs
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Human Capital
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the accumulated knowledge and skills that workers acquire from education and training or from their life experiences
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New growth Theory
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A model of long run economic growth that emphasizes that technological change is influenced by economic incentives and so is determined by the working of the market system
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Patent
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the exclusive right to produce a product for a period of 20 years from the date the product is invented
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Foreign direct Investment (FDI)
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the purchase or building by a corporation of a facility in a foreign country
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Foreign portfolio Investment
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the purchase by an individual or a firm of stocks or bonds issued in another country
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Globalization
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the process of countries becoming more open to foreign trade and investment
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Aggregate demand and aggregate supply model
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a model that explains short-run fluctuations in real GDP and the price level
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Aggregate demand curve
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a curve that shows the relationship between price level and the quantity of real GDP demanded by households, firms, and the government
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Short-run Aggregate supply curve
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a curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms
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Monetary policy
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the actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives
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Fiscal policy
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changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives
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Long-run Aggregate supply curve
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a curve that shows the relationship in the long run between the price level and the quantity of real GDP supplied
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Menu costs
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the costs to firms of changing prices
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Supply Shock
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an unexpected event that causes the short-run aggregate supply curve to shift
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Stagflation
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a combination of inflation and recession, usually resulting from a supply shock
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Why is the aggregate demand curve downward sloping?
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1. The wealth effect
2. The interest rate effect 3. The international trade effect |
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What variables shift the aggregate demand curve?
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-changes in government policies
-changes in the expectations of households and firms -changes in foreign variables |
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Increase in interest rates?
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Shifts the aggregate demand curve left, because higher interest rates raise the cost of borrowing, reducing consumption and investment spending
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Increase in government purchase?
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Shifts the aggregate demand curve right
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Increase in taxes?
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Shifts the aggregate demand curve left
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Increase in households' expectations of future incomes?
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Shifts the aggregate demand curve right
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Increase in the growth rate of domestic GDP relative to the growth rate of foreign GDP?
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Shifts the aggregate demand curve left, because imports will increase faster than exports, reducing net exports
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Increase in the exchange rate relative to foreign currencies?
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Shifts the aggregate demand curve left, because imports will rise and exports will fall, reducing net exports
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Why is the short-run aggregate supply curve upward sloping?
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1. Contracts make some wages and prices "sticky"
2. Firms are slow to adjust wages 3. Menu costs make some prices sticky |
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An increase in the labor force or the capital stock?
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The short-run aggregate supply curve shifts right, because more output can be produced at every price level
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An increase in productivity?
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The short-run aggregate supply curve shifts right, because costs of producing output falls
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An increase in expected future price levels?
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The short-run aggregate supply curve shifts left, because workers and firms increase wages and prices
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A increase in the expected price of imported natural resources?
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The short-run aggregate supply curve shifts left, because the cost of producing output rises
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Effects of recession?
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-the short-run effect of a decline in aggregate demand
-adjustment back to potential GDP in the long run |
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Effects of expansion?
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-the short-run effect of an increase in aggregate demand
-adjustment back to potential GDP in the long run |
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Effects of supply shock?
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-the short-run effect of a supply shock decreases short-run aggregate supply
-adjustment back to potential GDP in the long run |
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Macroeconomic facts that create the dynamic aggregate demand and aggregate supply model?
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-potential real GDP increases continually
-during most years, the aggregate demand curve shifts right -except during expected high rates of inflation, the short-run aggregate supply curve shifts right |
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What effects long-run economic growth?
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-labor productivity
-increases in capital per hour worked -technological change |
