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49 Cards in this Set
- Front
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A dramatic improvement in the stock market, causing investors' wealth to rise will? |
Increase Aggregate Demand |
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An announcement by the central band to maintain its existing monetary policy will? |
Not change Aggregate Demand |
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A dramatic decline in the average price of houses will? |
Decrease AD
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Increase concern that a recession is looming will? |
Decrease AD |
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A reduction in gov. spending will? |
Decrease AD |
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An increase in income tax rates on individuals earning more than $450,000 per year will? |
Decrease AD
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A recession occurring in a trading partner's economy will? |
Decrease AD |
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A decrease in the aggregate price level will cause (a) shift/movement up/down AD. |
Movement Down A decrease occurs in the overall price of all goods and service. |
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If the price level in the US increases relative to other countries, then the US will export ______ and import ______. Therefore, the net effect of an increase in the price level in the US is ______ in the amount of US goods and services that are purchased. |
Fewer goods and services More goods and services A decrease |
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What does it mean to characterize prices as sticky? |
That prices do not change very easily. |
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Which of the following is a source of sticky prices? |
The existence of labor contracts. |
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A company employees sales people. When the price level in the economy drops, the company lowers the percentage of commission. Which theory is this? |
Sticky wage theory |
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After switching jobs for a lower wage, Jim is surprised that he is still able to save the same percentage of his paycheck. What theory is this? |
Misperceptions theory |
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Although the cost of lumber decreased recently, a lumberyard keeps prices constant. What theory is this? |
Sticky price theory |
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Although the economy is healthy, there is an increase in the natural rate of unemployment; supply ______ |
Decreases |
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The price of lumber rises drastically due to the effect of heavy winter; supply _____ |
Decreases |
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The production of a new type of blade allows farmers to increase productivity by 40%; supply _____ |
Increases |
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Explain the relationship between the quantity of money demanded and the interest rate on bonds. |
As interest rates increase, quantity of money demanded decreases. |
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The interest rate is the opportunity cost of holding money. What happens to the opportunity cost of holding money when inflation occurs? |
The opportunity cost of holding money increases. |
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If interest rate decreases: Consumption - Investment - Gov. Spending - NX - Overall, Aggregate Demand - |
Increases Increases Doesn't change Increases AD Increases |
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Can cause a shift upward in AD |
The use of expansionary monetary policy. The federal Reserve purchases bonds on the open market. An increase in the money supply. |
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Will not cause a shift upward in AD |
The central band increases the discount rate. An increase in the personal income tax rate. An increase in the nation's resource endowment. An increase in the required reserve ratio. |
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In short-run, an increase in money supply will: Interest Rates - Aggregate Price Level - Real GDP - |
Decrease Increase Increase |
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Increase in income tax rates. The estate tax is repealed. Gov. increases military spending. Public money is used to build high-speed train. These are all examples of? |
Fiscal Policy |
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Gov. stabilization policy is used |
To reduce the severity of recessions and inflation. |
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How can a gov. return the market to equilibrium after a demand shock? |
Fiscal Policy |
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Which policy directly relates to supply shocks? |
Compromise policy |
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Which policy relates to Inflation OR unemployment? |
Government policy |
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Medicare is an example of discretionary spending, T/F? |
False |
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Education spending is an example of mandatory spending, T/F? |
False |
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Which type of spending currently takes up a larger proportion of the US federal budget? |
Mandatory spending |
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What identifies the multiplier effect in the macro-economy? |
A change in aggregate expenditures can affect Real GDP by more than the amount of the change. |
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Deficit spending is most associated with? |
Expansionary fiscal policy |
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Opponents of deficit spending argue that a portion of the desired economic effect will be? |
Crowded-out due to higher interest rates |
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What does crowded out describe? |
Increased gov. spending causing consumption and investment to decline |
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What does the Phillips curve illustrate? |
As unemployment decreases, inflation increases. |
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The original Phillips curve illustrated? |
The short-run trade-off between inflation and unemployment. |
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(Phillips Curve) Increases in the prices of essential raw materials lead to? |
Expectations of higher inflation in the future. |
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When the newest economic data lies to the right of the Phillips curve, that likely means that the Phillips curve? |
Has shifted upwards. |
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Influenced in the Long Run |
The rate of inflation The price level |
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Not influenced in the Long Run |
Unemployment Real GDP |
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Which situation presents the greatest difficulty for policy makers? |
Stagflation |
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What is stagflation? |
A deep recession can lead to both inflation and a sputtering economy. |
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The belief that there are no random, unpredictable events in an economy; everything is predictable. |
Rational Expectations |
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What is an important implication of rational expectations? |
Gov. intervention to combat unemployment is unnecessary. |
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Inflation rate + unemployment rate = ? |
Misery Index (measures health of the economy) |
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What does the natural rate of unemployment depend on? |
Minimum-wage laws The market power of unions The role of efficiency wages The effectiveness of job search |
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What does the inflation rate depend on? |
Growth in the money supply (which a nation's central bank controls) |
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Define The Phillips Curve |
A curve that shows the short-run trade-off between inflation and unemployment. |
