Term
| Business Taxes are reduced |
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Definition
Price level increases
real GDP increases |
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Term
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Definition
Price level increases
Real GDP increases |
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Term
| The price of natural gas (a resrouce price) rises |
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Definition
Price level increases
Real GDP decreases |
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Term
| Consumer wealth decreases |
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Definition
Price level decreases
Real GDP decreases |
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Term
| The money supply is decreased |
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Definition
Price level decreases
Real GDP decreases |
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Term
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Definition
Price level decreases
Real GDP increases |
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Term
| Government purchases increase |
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Definition
Price level increases
Real GDP increases |
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Term
| Businesses expect future sales to decrease |
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Definition
Price level decreases
Real GDP decreases |
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Term
| Consumers expect their incomes to be rising in the future |
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Definition
Price level increases
Real GDP increases |
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Term
| in a circular flow model, business are assumed to be ____________ |
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Definition
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Term
| As income increases, the average tax rate increases. You classify this tax as being ____________. |
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Definition
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Term
| The short run aggregate supply (SRAS) curve is drawn assuming that as real GDP rises, _________________ |
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Definition
| Product (output) prices and resrouce (input) prices both increase |
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Term
| In the Keynesian model, we assume that prices |
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Definition
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Term
| In the Keynesian model, assume that at a certain level of real GDP total production exceeds total expenditure (TP>TE). As such, you predict that real GDP will |
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Definition
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Term
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Definition
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Term
| Say the economy is in long run equilibrium, and then assume that there is an increase in aggregate demand (AD). According to the neoclassical (self-regulating) model, what will eventually happen? |
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Definition
| Short run aggregate supply (SRAS) will increase |
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Term
| As real GDP rises, net tax revenues will |
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Definition
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Term
| Keynes argued that as disposable income increases, the APC will |
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Definition
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Term
| As foreign income rises, the US aggregate demand curve will ___________________ |
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Definition
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Term
| The interest rate effect describes the slope of the __________ |
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Definition
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Term
| Say the economy is in long run equilibrium, and then assume taht short run aggregate supply (SRAS) decreases. According to the neoclassical (self regulating) model, what will eventually happen? |
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Definition
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Term
| In economics, "income and "wealth" are ___________ |
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Definition
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Term
| As resrouce prices rise, the SRAS curve will |
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Definition
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Term
| Transfer (entitlement) payments are |
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Definition
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Term
| A particular tax is such that the marginal tax rate is less than the average tax rate. This tax is classified as being |
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Definition
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Term
| All of the following will increase aggregate demand EXCEPT an increase in ______ |
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Definition
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Term
| Say the economy is in long run equilibrium, and then assume that aggregate demand (AD) decreases. In the neoclassical (Self-regulating) model, what will eventually happen? |
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Definition
| Short run aggregate supply (SRAS) increases |
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Term
| Say's Law assumed to be true in the __________- |
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Definition
| Classical (self-regulating) |
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Term
| All markets are assumed to be competitive in the |
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Definition
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Term
| If the economy is in a recessionary gap, then, in the neoclassical (self regulating) model, we will see resource prices __________ |
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Definition
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Term
| Which of the following is NOT an example of fiscal policy? Reducing __________ |
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Definition
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Term
| If the US dollar depreciates, then ___________ |
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Definition
| US exports will increase and US imports will decrease |
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Term
| The international trade effect describes the slope of the |
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Definition
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Term
| The long run aggregate supply curve corresponds to the |
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Definition
| institutional production possibilities frontier (PPF) |
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Term
| As the money supply is increased (ceteris paribus), interest rates will |
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Definition
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Term
| Critics of the Federal government budget deficits argue that large deficits can lead to |
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Definition
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Term
| Say the economy is at long run equilibrium, and then assume that short run aggregate supply (SRAS) increases. Eventually, what will happen? |
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Definition
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Term
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Definition
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Term
| The real balance effect describes the slope of the |
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Definition
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Term
| Assume MPC is equal to 0.9. What is the MPC equal to? |
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Definition
m=1/1-MPC
m=1/1-.9
MPC= 0.1 |
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Term
| Assume the MPC is equal to 0.9. What is the multiplier equal to? (MPS is equal to 0.1) |
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Definition
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Term
| Assume the MPC is equal to 0.9. (MPS is equal to 0.1 & the multiplier = 10). Say investment spending rises by $50 billion. Wat will be the change in real GDP? |
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Definition
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Term
| Assume the MPC is equal to 0.9. (MPS is equal to 0.1 and the multiplier = 10). Say government purchases fall by $30 billion. What will be the change in the real GDP? |
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Definition
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Term
| Wat is the lump sum tax multiplier equal to? Assume the MPC is equal to 0.9. (MPS is equal to 0.1) |
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Definition
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Term
ADAS
Aggregate Demand Aggregate Supply |
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Definition
Aggregate = total
General model of macro economy
can use to understand business cycles and impacts of government policies |
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Term
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Definition
| AD= quantity demeanded of all goods and services (real GDP) at each price level, cereris paribus= C + I + G + Xn |
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Term
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Definition
| for given amount of money, as price level drops, can purchase more goods and services from that amount of money... Increase 'purchasing power', raise real GDP |
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Term
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Definition
| As price rises, households and businesses try to borrow more to maintain current expenditures: raise interest rate (price of credit), reduce some consumption and investment expenditures, and so real GDP |
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Term
| International Trade Effect: |
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Definition
| As US prices rise, US exports become less competitive abroad, exports fall, and so does real GDP; Akin to the Substitution Effect (foreign for domestic products) |
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Term
| Shifts in aggregate Demand |
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Definition
| AD can shift to right (increase) or left (decrease) because of changes in C,I,G,XN, or money supply |
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Term
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Definition
as household wealth increases, so does consumption...
1. often more 'nonearned' income (dividends payments, interest payments, etc.)
2. More collateral to borrow against (eg. home equity loans) |
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Term
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Definition
| as taxes rise, disposable income falls, and so does consumption and AD |
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Term
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Definition
as interest rates rise, lower spending on durable goods: C falls, and AD falls
INCOME: derived from the employment of resources
WEALTH: assets |
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Term
| Expectations of future income: |
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Definition
| If households expect higher incomes in future, will borrow more today, raise C and AD |
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Term
| Expectations of the future prices: |
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Definition
| if households expect prices to rise in future, will try to buy today: Rise C and AD |
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Term
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Definition
| as interest rates rise, increase cost of borrowing for capital goods: 'I' drops, as does AD |
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Term
| Business taxes: as business taxes increase, after tax profits drop, reducing I and AD |
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Definition
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Term
| Expectations of future sales: |
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Definition
| if businesses expect greater sales in future, will expand today (incerase I) to meet expected larger sales: increase AD |
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Term
| If increase money supply: |
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Definition
| lower interest rates; increase C and I; increase AD |
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Term
| If raise government purchases: |
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Definition
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Term
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Definition
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Term
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Definition
US exports demand on a foreign income and exchange rate
US imports depend on exchange |
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Term
| Short run aggregate supply (SRAS) curve |
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Definition
In sort run, assume that resrouce prices, including wages do not increase as production rises
assume fixed amounts of resources (labor, land, capital) in economy
For individual firm, profit per unit (produced)= price per unit- cost per unit
with fixed resource prices, cost per unit fixed; rising prices increase profits, firms willing to expand production in short run
Get upward sloping SRAS: as price level rises, so does quantity supplied of all goods and services (Real GDP) |
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Term
| Shift in SRAS: SRAS will increase (shift to right) or decrease (shift to left) due to |
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Definition
Changes in wage rates: if wages increase, profits shrink, SRAS shifts left
Changes in other resource prices (land, capital): as these rise, SRAS shifts left
Productivity (output per unit of input): as productivity rises, cost per unit falls: increase profit per unit, shift SRAS to right
(unit labor cost: labor cost/output: "inverse" of productivity: as unit labor costs drop, cheaper to produce)
Negative and positive supply shocks (unexpected but temporary shifts in SRAS) |
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Term
| Macroeconomic Equilibrium |
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Definition
Intersection of AD and SRAS gives (short run) equilibrium price level and real GDP
Four cases:
AD increases: increase price level, increase real GDP
AD decreases: decrease price level, decrease real GDP
SRAS increase: decrease price level, increase real GDP
SRAS decreases: increase price level, decrease real GDP |
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Term
| Long Run Aggregate Supply Curve |
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Definition
| vertical line at natural real GDP, corresponding with natural unemployment rate (full employment): in LR, all three curves intersect at same point |
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Term
| Classical Model Assumptions |
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Definition
Markets are competitive, including product resource and financial (loanable funds or credit) markets: prices, wages, resource prices and interest rates can both fall and rise; no one firm can set market price by itself
Say's Law: "supply creates its own demand": very act of production generates incomew it which production can be purchased
Assumptions mean that economy should be at full employment (almost) all of the time
If have unemployed persons, they will be willing to work for lower wages
if have unsld products, firms will reduce prices
if households save more (and consumer less), ten savings increase: increase supply of loanable funds, reduce interest rates, increase investment spending (to counteract drop in consumption) |
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