Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/46

Click to flip

46 Cards in this Set

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