Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
25 Cards in this Set
- Front
- Back
|
The four components of aggregate demand |
Consumption, Investment, Government Purchases, and Net Exports |
|
|
The slope of the consumption function |
Marginal Propensity to Consume |
|
|
What happens to the level of investment demand when the real interest rate rises? |
Goes down |
|
|
Keynes believes this causes cyclical unemployment and recessionary GDP gap |
Too little AD |
|
|
Not enough info... APC=.875, APS=.125 |
|
|
The two components of deficit spending |
Structural and Cyclical |
|
|
This is the reason the current president and Congress do not have complete control over the deficit |
Much of the spending was promised in previous years |
|
|
The effect that causes interest rates to rise and private spending to fall when the government increases the deficit. |
Crowding out |
|
|
When the opportunity cost of increasing the national debt through American sources must be paid |
When the spending occurs/now |
|
|
The differences b/w financing government projects through borrowing versus doing the same by raising taxes. |
Nothing |
|
|
The three functions of money |
Medium of exchange, Unit of acount, Store of value |
|
|
Why the value of your savings account doesnt count toward M1 |
You cannot use it to buy things |
|
|
The amount of deposits banks are legally obligated to keep on hand |
Required reserves |
|
|
The formula for the money multiplier |
1 divided by reserve requirement |
|
|
The formula for the money-creating potential of the banking system. |
Excess reserves times money multipier |
|
|
The group within the Federal Reserve that decides when to increase or decrease the money supply |
Federal Open Market Committee |
|
|
The three tools of monetary policy |
Reserve requirement, Discount rate, Open market operations |
|
|
What increasing the reserve requirment will do to the money multiplier and the money-creating potential of the banking system |
Reduce them both |
|
|
Decreasing the discount rate will make it cheaper for banks to do this |
Borrow from the Fed |
|
|
Assuming no leakages, the amount the money supply will change if the reserve requirment is 20% and the Fed buys $5 billion worth of bonds |
$25 billion |
|
|
The shape of the money supply curve |
Vertical |
|
|
This should happen to the interest rate if the money supply increases |
It falls |
|
|
At least 2 reasons why an increase in MS by the Federal Reserve may not increase AD |
Reluctant lenders and liquidity trap |
|
|
Since monetarists believe business will not increase output just bc of a change in the money supply, this will be the only effect of increasing the money supply |
Prices rise/inflation |
|
|
The type of monetary policy that monetarists advocate |
Slow, predictable money growth/ no radical changes |
