Econ 205 Final

Front 1

Describe the association - prices, money people hold, price level, money demanded

Back 1

higher prices, more money in wallets, higher price level, great quantity of money demanded

Front 2

Quantity theory of money

Back 2

Quantity of money determines the price level and that the growth rate in the quantity of money available determines the inflation rate

Front 3

Monetary neutrality

Back 3

Change in monetary variables are irrelevant to change in real variables

Front 4

Velocity / Quantity Equation

Back 4

M x V = P x Y
M = quantity of money
V = velocity of money
P = price of output
Y = amount of output

Front 5

What government raises revenue by printing money...

Back 5

inflation tax

Front 6

Who does the inflation tax, tax?

Back 6

everyone who holds money

Front 7

Fisher Effect

Back 7

One to one adjustment of the nominal interest rate and inflation rate

Front 8

Shoeleather costs

Back 8

Resources wasted when inflation encourages people to reduce their money holdings

Front 9

Menu costs

Back 9

Costs of price adjustments

Front 10

What are the six costs of inflation?

Back 10

shoeleather costs
menu costs
variability of relative prices
changes due to unindexed tax codes
confusion / inconvenience
redistribution of wealth between creditors/debts

Front 11

FDI

Back 11

McDonalds opening a fast fook restaurant in Russia

Front 12

FPI

Back 12

American buys stock in Russian firm

Front 13

What is the relationship between national savings, investment and NX

Back 13

S = I + NX (NCO)

Front 14

Appreciation

Back 14

exchange rate changes so that one dollar buy more of a foreign currency

Front 15

How to calculate real exchange rate?

Back 15

Real exchange rate = (Nominal exchange rate X domestic price)/ foreign price

Front 16

How to calculate nominal exchange rate using foreign and domestic price levels?

Back 16

nominal exchange rate = foreign price / domestic price

Front 17

What are two reasons PPP doesn't hold up?

Back 17

Goods are not easily traded (trasportation costs)
Not everything has a perfect substitute

Front 18

Where do the supply and demand of loanable funds come from?

Back 18

S = I + NCO
S = supply
I + NCO = demand

Front 19

What is the key determinant of NCO?

Back 19

real interest rates

Front 20

Relate - budget deficit, loanable funds, interest rate, investment, currency

Back 20

large budget deficit, reduces supply of loanable funds, drives up interest rate, crowds out investment, appreciates currency (because NCO drops, less dollars abroad, they become more valuable)

Front 21

What connects the markets for loanable funds and the foreign currency exchange markets?

Back 21

NCO - leads to demand for loanable funds and supply for foreie

Front 22

The Wealth Effect

Back 22

Decrease in price level raises the real value of money and make consumers wealthier, which in turn encourage them to spend more. The increase in consumer spending means a larger quantity of goods and services demanded

Front 23

Interest Rate Effect

Back 23

Lowest price level, reduces interest rate, encourage spending, increases quantity of goods and services demanded

Front 24

Exchange Rate Effect

Back 24

US price level falls, US interest rates fall, real value of dollar declines, depreciation stimulates US net exports, increase quantity of goods and services demanded

Front 25

Three reasons aggregate demand curve slopes down?

Back 25

Wealth Effect
Interest Rate effect
Exchange rate effect

Front 26

What could cause a shift in the aggregate supply curve?

Back 26

Change in Labor - immigration
Change in Capital
Change in Natural Resources - new discovery
Change in Tech Knowledge - inventions

Front 27

Why is the short run supply curve sloped whereas the long run is vertical?

Back 27

1. sticky wage theory
2. sticky price theory
3.

Front 28

How does the expected price level affect the aggregate supply long run curve?

Back 28

Increase in expected price level reduces the quantity of goods and services supplied and shifts the short run aggregate supply curve to the left

Front 29

Why is the aggregate supply curve vertical?

Back 29

In the long run, quantity of goods and services supplied depends on the economy's labor, capital, natural resources, and te

Front 30

Liquidity preference theory

Back 30

Interest rate adjusts to bring money supply and money demand into balance

Front 31

Multiplier

Back 31

1/ (1-MPC)

Front 32

Crowding out effect

Back 32

offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending

Front 33

Affect of government spending on aggregate demand depends on ...

Back 33

size of multiplier versus crowding out a

Front 34

Phillips Curve

Back 34

Shows the negative relation between inflation and u in the s

Front 35

Why is the phillips curve vertical in the long run?

Back 35

monetary neutrality, in the long run nominal variables won't matter (inflation does not affect u)

Front 36

What does natural mean in the context of unemployment?

Back 36

When the unemployment is beyond the influence of monetary policy

Front 37

How can a supply shock shift the phillips curve?

Back 37

shift ag supply left, lower output, raises price, shifts phillips curve right (worse tradeoff between inflation/u)

Front 38

Sacrifice ratio

Back 38

number of % points of annual output lost int he process of reducing inflation by 1 % point

Front 39

What is the formula that sums up all components of GDP?

Back 39

Y = C + I + G + NX(NCO)

Front 40

If domestic i goes up, then NCO goes

Back 40

down