| Flap 1 | Flap 2 |
| T/F Economic flucuations are irregular and unpredictable | True |
| T/F Most macroeconomic quantities flucuate independently. | False |
| Fall output means what for unemployment | rising unemployment |
| Classic marcoeco says changes in money supply... | only affect nominal variables |
| Real and nominal variables are highly related in... | the short run |
| curve that shows the quantity of goods and services households, firms, govn't and customers aboard want to buy and each price lvel | aggregate demand |
| Aggregate demand is related to...(eqn) | Y=C+I+G+(E-I) |
| Wealth effect | the real value of $$ is not fixed (changes in price level) |
| Lower the price level, the ___money households need to buy good and services. | Less |
| Lower interest ____ the quantity of demand. | increases |
| Higher price level...effect on demand and interest rate | raises interest rate, reduces investment and demand |
| Low price level...effect on interest rate and foreign currency exchange | low interest rate, investors go abroad, more supply of $$, value of dollar goes down |
| three reasons for fall in price level increasing demand | wealthier consumers, more invest (low interest rate), currecy depreciates -->demand for net exports |
| Shifts in aggregate demand curve (4) | changes in consumption, investment, gov't purchases, net exports |
| Cuts in taxes (ag. demand curve) | curve shifts right (encouraged to spend) |
| Decrease in money supply (short term interest rate, investment, agg. curve) | raises interest rate, less investment, curve goes left |
| NX change that causes ag. demand curve to shift right | other country goes into recession, buys less US product |
| in the long run, the agg. supply curve is... | vertical |
| why is agg. supply curve vertical in long run | depends on countries ability to turn its labor, capital, etc into goods and service |
| long run shifts in agg. supply...(4) | changes in labor, capital, natural resources, technological knowledge |
| Congress increase min wage (agg. supply curve) | natural unemployment goes up, curve goes left |
| T/F Overall price level does not affect ability to produce goods and services. | True |
| quantity of output supplied changes when... | price level deviates from the expected level |
| sticky wage theory | wages are slow to chang |
| HIgher than expected price level and wages | companies can take advantage of the cheaper labor costs, wages dont change until new contract |
| menu costs lead to... | sticky price theory |
| Increase in price level, short run agg. supply curve | reduces quantity of goods and services supplied, shift left |
| Variable the affect short run supply, not long run supply? | price level |
| shifts of agg. demands in short run | flux in output |
| shifts of agg. demands in longrun | affect overall price level, not outpu |
| Sept 11th and agg demand | shift demand left, uncertainity |
| period of falling output and rising prices | stagflation |
| T/F NCO=NX | True |
| US company sells overseas, US NX? NCO? | bhttp://www.studystack.com/AddCards.jsp?studyStackId=87663oth increase |
| T/F S=NX-NCO | False |
| Saving is smllar than investment and NCO is positive | trade deficit for country |
| dollars go from 115 yen to 125 yen | dollar appreciated by more japanese goods |
| real exchange rate | e(P/P*) e is exchange, P* foreign basket |
| If prices increase faster in US than Poland...(nominal rate) | nominal rate falls (polish per dollar) |
| US goods when dollar appeciates | more expensive relative to foreign good...exports down, imports up |
| Part of the demand for loanable funds, and the source of supply of dollars in the foreign exchange market | net capital outflow |
| real interest rate is a key determinate of | NCO |
| country gets budget deficit | real exchange rate appreciates loss in trade |
| impose restrictions on imports (foreign exchange, demand for loanable funds) | more demand for dollars, loanable funds equal |
| If gov't will default on debt... | raise interest rate...depreciate currency |
| rise in real wealth (agg demand) | increases demand |
| people hold less money, lend more and interest rate falls when... | price level decreases |
| T/F when price level falls, investors invest at hom | false |
| shift in agg demand to cause price level to fall and real GDP increase | shift left |
| investment tax credit... | agg demand right |
| vertcal, graphical rep of classical dichotomy, money neutrality | long run agg supply curve |
| more immigration and less min wage... | long run supply curve go right |
| Decrease in expected price level shifts... | short-run supply right |
| Long run price level and GDP with pessimism | price level lower, real GDP is same |
| policy to try and do what if supply shifts and contracts | shift demand right |
| Purchase by Japanese of US bond | decreases US net cap outflow |
| National saving (S)= | S = I + NX |
| the rate at which one person can trade the currency of one country for the currency of another | nominal exchange rate |
| arbitrage | process of taking advantage of different prices in different markets |
| Limtis to purchase power parity theory (2) | 1) goods not easily traded 2) goods are not perfect substitutes (think american vs. german cars) |
| demand for dollars by foreigners arising from net export exactly balances the supply of dollars from US net cap outflow | equilbrium exchange rate |
| too high real exchange rate | surplus in dollars supplied, the surplus would drive value of a dollar down |
| How are the market for loanable funds, NCO, and currency exchanged tied together? | Market for loanable determines real interest rate, RI rate determines NCO, NCO determins supply for foreign currency Xchange |
| import quota... | increase the demand for dollars, real exchange rate appreciates, Net exports = |
| T/F Trade polices affect the trade balance | False, NX = NCO |
| Net Exports | Export-Import |
| NCO | Purchase of foreign goods by residents - purchase of domestic by foreigner |
| When there is a trade ____ saving is more than investment | surplus |
| decrease in value of currency measured by amount of foreign currency it can buy | depreciation |
| Purchase power parity says nomial exchange rates depend on... | prices levels in those countries |
| As net capital outflow goes from negative to positive, real interest rate... | decreases |
| A higher interest rate at home makes... | domestic assets more attractive |
| Reduction in supply of loanable funds (NCO and exchange market) | NCO is less, less supply of dollars, real exchange rate appreciates |
| multipler effect | when governments make purchases in increase demand much more than dollar for dollar |
| Multiplier = | 1/(1-MPC) |
| MPC | marginal propensity to consume |
| Larger MPC... | greater effect of spending is |
| increase in gov't purchases increase agg. demand and increases money demand (2) | increases interest rate, which paritally offsets rise in agg. demand (crowding out) |
| Explicit goal of US Employment ACt of 1946 | goverment hold itself accountable for short-run macroeco performance |
| Why active stablization? | Market reacts a lot to feeling, gov't should stabilize econ |
| Why not active stabilizatin? | 1) Policy has long lag 2) Use tools for long-term goals 3) large dependence on political process |
| Examples of automatic stablizers | Tax policy, welfare |
| Effect of higher real wealth... | simulates consumer spending and increases agg demand |
| Lower interest rate effect... | more investment spending and increases agg demand |
| Exchange-rate effect... | low interest rate moves investors overseas, real value of domestic goods falls increases agg demand |
