Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Macroeconomics120
Final Exam Macroeconomics
| Question | Answer |
|---|---|
| If at some interest rate the quantity of money supplied is greater than the quantity of money demanded, people will desire to… | Buy interest-bearing assets causing the interest rate to decrease |
| Shifts AD Curve | Pessimism causes household spending and investment to decrease |
| Consumption increases = | AD increases |
| Theory of Liquidity Preference | Keyne’s theory that the interest rate adjusts to bring money supply and money demand into balance |
| Money Supply (MS) (Liquidity) | Controlled by feds |
| Money Demand (MD) (Liquidity) | The liquidity of money explains why people choose to hold cash rather than an asset that could earn you a higher return |
| Stagflation | A period of falling of output and rising prices |
| Suppose the economy is initially in long-run equilibrium and aggregate demand rises. In the long-run prices… | Are higher and output is the same as the original long-run equilibrium |
| Automatic Stabilizers | Changes in fiscal policy that stimulate AD when the economy goes into recession without policy makers having to take action |
| Money Demand shifts left… | Decrease in the price level |
| Money Demand shifts right… | Increase in the price level |
| Crowding Out Effect | Works in the opposite direction of the multiplier The offset in AD that results when expressing fiscal policy raises the interest rate and thereby reduces investment spending |
| A decrease in the price level causes the interest rate to | Decrease, the dollar to depreciate, and net exports to increase |
| When the interest rate increases, the opportunity cost of holding money | Increases, so the quantity of money demanded decreases. |
| As the price level decreases, the value of money… | increases, so people want to hold less of it. |
| Marginal Propensity to Consume | Proportion of additional income (expressed as a decimal) that will be consumed, rather than saved, by a consumer or by an entire economy. If 90 cents of an additional dollar of income will be consumed, then MPC = 0.90 |
| AD-AS Model | Explains price level and output through the relationship of aggregate demand and aggregate supply |
| When Price Level increases, the quantity of money people want to hold increases | Thus price level increases and MD shifts right |
| Higher interest rate, cost of borrowing increases and the return on savings increases. | Consumers spend less and invest less The quantity of goods and services demanded will fall |
| AD Shifts Right | The lower interest rate reduces the cost of borrowing and the return to saving Consumption investment increases Amount of services demanded at each price level increases |
| AD Shifts Left | Feds sell bonds → Money Supply Decreases → Interest Rate Increase → Consumption and investment increase → AD SHIFTS LEFT |
| SRAS shift left | Increase AD, the recession will end but the price level will permanently be higher |
| SRAS shift right | Government can cut spending Fed can reduce money supply to try and bring AD back to the left |
| When Ghana sells chocolate to the United States, US net exports | decrease, and the US net capital outflow decreases. |
| Other things the same, if the exchange rate changes from .30 Kuwaiti dinar per dollar to .35 Kuwaiti dinar per dollar, the dollar has… | appreciated and so buys more Kuwaiti goods. |
| Other things the same, if the exchange rate changes from 41 Thai bhat per dollar to 35 Thai bhat per dollar, the dollar has | depreciated and so buyers fewer Thai goods. |
| Aggregate Demand List the 3 effects of why AD slopes downward | Exchange rate effect Wealth Effect Interest Effect |
| Wealth Effect | an increase in spending that accompanies an increase in perceived wealth. |
| 4 factors that would shift AD curve | Expansionary Monetary Policy Contradictory Monetary Policy Expansion Fiscal Policy Contradictory Fiscal Policy |
| 3 theories why SRAS is upward sloping | Sticky-Wage Sticky-Price Misconception |
| Sticky-Price | The proposition that some prices adjust slowly in response to market shortages or surpluses |
| Government Multiplier | M-C+FY F=Marginal Propensity to Import, Y=GDP, M=Imports, C=Constant |
| Tax Multiplier | Multiplier in an open economy with international trade is then=1/(1-MPC+f) |
| What Shifts AD Curve? | People choose to spend more rather than save |
Created by:
andrewgill19
Popular Business sets