Macro Final

Front 1

according to the law of demand

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people buy more of a good when the price falls

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what is consistent with the law of demand

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college enrollment increases when federal tuition grants are readily available

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a demand schedule

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is only for a given time period

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define law of demand

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when the price of a product falls, the quantity demanded of the product will increase and vice versa

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define demand schedule

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a table that shows the relationship between the price of a product and the quantity of the product demanded

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a rightward shift of a demand curve shows

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an increase in demand

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a shift to the left of a demand curve shows

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a decrease in demand

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mary decreases her consumption of good x after the price of good y decreases, for mary

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good x and good y are substitutes

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define the law of supply

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increases in price causes increases in the quantity supplied and decreases in price cause decreases in the quantity supplied

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other things being equal an increase in the price of a good leads o an increase in the amount produced. this is known as

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law of supply

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the data points on a supply curve come from

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the supply schedule

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what is likely result of the dramatic decrease in the price of microprocessor chips to computer manufacturers in the last two decades

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an increase in the supply of computers

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a surplus exists when

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quantity supplied is greater than quantity demanded

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the labor force participation rate is the

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proportion of the adult population in the labor force

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frictional unemployment will always exist because

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some workers quit their jobs without having another job already lined up

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structural employment is

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a result of a poor match of workers abilities and skills with current requirements of employers

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cyclical unemployment is

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a result of business recessions that occur when aggregate demand is insufficient to create full employment

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full employment includes

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employed people plus the natural rate of unemployment

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deflation is the situation when

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the average of all prices is declining

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when computing a price index, the base year is

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the year that is chosen as the point of reference for comparison of prices with other years

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the GDP deflator is

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the most general indicator of inflation since it measures changes in the prices of all goods in the economy

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the real rate of interest is

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the interest rate observed in the market minus the inflation premium

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the real price of a good is

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the nominal price adjusted by the level of inflation

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good and services are sold

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in the product markets

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total income is

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the yearly amount earned by the nations resources

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GDP does not include intermediate goods because

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that would count the value of intermediate goods twice

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value added is

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the amount of dollar value contributed to a product at each stage of its production

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the expenditure approach to measuring GDP

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adds the dollar value of final goods and services

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an increase in investment spending that increases GDP occurs when

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a business buys a new computer

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using the expenditure approach GDP is calculated as

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consumption expenditures + investment expenditures + government expenditures + net exports

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the income that individuals have after personal income taxes have been paid is called

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disposable personal income

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constant dollars are

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dollars corrected for general price level changes

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real GDP id

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GDP corrected for changes in the average of overall prices

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given the assumptions of the classical mode

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the market is a self-correcting mechanism

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in the classical model, and increase in the aggregate demand will lead to an increase in wage rates while a decrease in aggregate demand will

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decrease wages

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according to the Keynes, wages were inflexible because

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of unions and long term contracts

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a basic difference between the classical mode and the Keynesian model is that

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the classical model assumes that the level of real GDP is supply determines while the Keynesian model assumes that it is demand determined

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a change in tastes for US produced goods will

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lead to an aggregate demand supply curve

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if aggregate demand falls, then

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there will be a contractionary gap

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demand-pull inflation is

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inflation caused by increases in aggregate demand that is not matched by increases in aggregate supply

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what can cause inflation

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decreases in short-run aggregate supply

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define cyclical unemployment

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cause by a business cycle recession

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define GDP

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the market value of all final goods and services produced in a country during a period of time, typically a year

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define aggregate demand curve

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a curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government