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42 Cards in this Set

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  • Back
The value of production when all inputs are fully employed ___________
Potential Output
The bottom of the business cycle
Trough
Times of economic weakness and contractions
Recessions
Economic policies that involve changes in government spending and taxes
Fiscal Policy
The difference between production with fully employed inputs and actual production
Output Gap
Economic policies that involve changing the money supply or interest rates
Monetary Policy
GDP and unemployment are related through
Okun's law
Monetary and fiscal policies are examples of
Stabilization Policies
Unemployment and inflation are related through
Phillips Curve
Equilibrium output and prices are determined by the intersection of
Aggregate Demand and Aggregate Supply Curves
Consumption (C) plus Investment (I) plus Government Expenditures (G) plus Net Exports (NX) is defined as
Gross Domestic Product (GDP)
Gross income (Y) plus transfers (TR) less taxes (TA) is defined as
Sources of Disposable Income
The ratio of nominal GDP to real GDP
GDP deflator
Percentage rate of increase in the level of prices during a given period
Inflation
The value of the stock of assets held (such as equities, bonds, money) evaluated at a point in time is
Wealth
The flow of value of payments to factors of production such as capital and labor during a particular period of time is
Income
The difference between government spending and taxes is the
budget deficit
The ratio of nominal money to the price level
real balances
When planned and actual spending are equal, the economy is in
equilibrium
The relation between consumption and income is
Consumption function
The difference between tax receipts at full employment and government expenditure
full employment budget surplus
The LM curve represents equilibrium in the
money or asset market
The IS curve represents equilibrium in the
Goods market
A program, such as the income tax, that reduces the effect of shocks to the economy without any direct government action is an
automatic stabilizer
Increasing the money supply in order to offset the increase in interest rates from an expansionary fiscal policy is
monetary accommodation
Size of an increase in the equilibrium level of income from an increase in the money supply
monetary policy multiplier
The effect of an increase in interest rates on investment, following expansionary fiscal policy is defined as
crowding out
Shows how much an increase in government spending changes the equilibrium level of income, holding real money supply unchanged
Fiscal policy multiplier
The decision on the form in which to hold assets is a
Portfolio decision
The flow value of payments to factors of production such as capital and labor during a particular period of time is
income
The value of the stock of assets held (such as equities, bonds, money) evaluated at a point in time is
Wealth
AD = C + Ibar + Gbar + NXbar
Aggregate Demand
YD = Y + TRbar - TA
Disposable Income
C = Cbar + c(Y + TRbar - TA)
Consumption
TA = t * Y
Tax Receipts
What are the admissible values for the marginal propensity to consume (c)?
0 < c < 1
What is the signifiance of the admissable values for (c) and of the positive intercept in the consumption equation (C)?
0 < c < 1 and cbar > 0 together ensure the existence of an equilibrium level of output
2 assumptions:
1. prices
2. behavior of producers
1. prices are fixed
2. producers are willing to produce and sell all of the output demanded at prevailing prices
What are the three primary measures that we use to judge macroeconomic performance?
1. GDP growth rate
2. Inflation rate on CPI or PCE
3. Unemployment rate
Why do we use GDP growth rate as a measure?
Implies a measure of the increase in our standard of living
Why do we use Inflation rate as a measure?
Implies a measure of the uncertainty regarding the purchasing power of income
Why do we use unemployment rate as a measure?
a measure of the uncertainty regarding the continuation of income