macro

Increased pessimism

Lower price levels and output as AD shifts left. Worsened job prospects - concerns they will lose job. Could result in change of belief about wealth: stock market crash leads to decreased consumer confidence and decreased spending.

Great Moderation

Mid 80s - mid 2000s. Little booms and busts during this time in GDP. reduction in volatility in business cycle fluctuations.

For example, an increase in the money supply, a (nominal/real) variable, will cause the price level, a (nominal/real) variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a (real/nominal) variable. The separation of real variables and nominal variables is known as the (classical dichotomy/the quantity theory/price neutrality).

Nom, Nom, Real, Class

What effect has women's labor force participation had on GDP?

Increased GDP because home production doesn't count. This means positive shift in LRAS curve.

Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The inflation rate The price level The size of the labor force The level of technological knowledge

First 2. Money does not influence the long-run level of output.

Which of the following probably occurred as the U.S. economy experienced declining real GDP in 1948? Check all that apply. Total real income declined. The unemployment rate increased. Correct Car sales increased Corporate profits declined.

1,2,4

Which of the following probably occurred as the U.S. economy experienced declining real GDP in 1953? Check all that apply. Correct Retail sales declined. Correct Home sales increased. Correct The unemployment rate increased. Correct Consumer spending declined.

1,3,4

The aggregate-demand curve shows that a decrease in the price level A. increases the real value of goods and services demanded in the economy. B. decreases the real value of goods and services demanded in the economy. C. increases the dollar value of goods and services demanded in the economy. D. decreases the dollar value of goods and services demanded in the economy.

A

The position of the long-run aggregate supply curve A. is determined by resource usage and technology. B. is at the point where the unemployment rate is zero. C. is at the point where the economy would cease to grow. D. shifts to the right when the money supply increases.

A

Which of the following items is included in GDP? A. the sale of services such as those performed by a doctor B. the sale of stocks and bonds C. the sale of used goods D. All of the above are included in GDP.

A

Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it used to bake bread that customers purchased. In which case will the flour be counted as a final good? A. ABC Bakery's purchase but not Janet's purchase. B. Janet's purchase but not ABC Bakery's purchase. C. Janet's purchase and ABC Bakery's purchase. D. Neither Janet's purchase nor ABC Bakery's purchase.

B

Tim mows the yard for his neighbors. He spends $1 on gas and charges them $20 for each lawn he mows. What's the total contribution to GDP each time Tim mows a yard? A. $19 B. $20 C. $1 D. $21

B

Notice that real GDP trends upward over time but experiences ups and downs in the short run. These short-run fluctuations in real GDP are often referred to as (recessions/expansions/business cycles)

Business cycles

In the equation Y = C + I + G + NX, A. all of the variables are always positive numbers. B. C represents household expenditures on services and durable goods. C. Y represents the economy's total expenditure. D. All of the above are correct.

C

Positive AD shock

Increased optimism and wealth. Consumers increase spending leads to higher price and higher output. Workers demand higher wages. Firms making profit, so more willing to accept -SRAS shifts left

Increased optimism

Causes AD to shift right. Output increases and higher short-run equilibrium price level. Could be result of improved job prospects = stable future income. Changes of belief about wealth: dot.com and housing boom

A relatively mild period of falling incomes and rising unemployment is called a(n) A. expansion. B. depression. C. business cycle. D. recession.

D

GDP is equal to A. Y. B. C + I + G + NX. C. the market value of all final goods and services produced within a country in a given period of time. D. All of the above are correct

D

In the actual economy, goods and services are purchased by A. households, but not firms or the government. B. households and the government, but not firms. C. households and firms, but not the government. D. households, firms, and the government.

D

When economists refer to intangible items, they are referring to such things as A. illegal goods, and the value of such items is excluded from GDP. B. illegal goods, and the value of such items is included in GDP. C. hair styling and dental care, and the value of such items is excluded from GDP. D. hair styling and dental care, and the value of such items is included in GDP.

D

The Great Depression

Decreases in stock market decreased the wealth consumers had - decreasing consumption. Banking runs and collapses left companies without options for borrowing money to fund further investment. In GDP equation CI were effected.

Negative AD shock

Increased pessimism and decreased wealth. Consumers decrease spend leads to lower price and low output. Firms cut production and fire. This puts downward pressure on wages - would shift SRAS to right

Which of the following probably occurred as the U.S. economy experienced increasing real GDP in 1958? Check all that apply. Consumer spending increased. The unemployment rate declined. Industrial production decline Home sales declined.

First 2

Change need to increase AD: Wealth Taxes Expected rate of return on investment Incomes in other countries

In, de, in, in

What determines the capacity of the economy to produce

Population of workers and their human capital, physical capital (buildings and machines available), tech capability, natural resources. They are not affected by price level. The Long-run aggregate supply is the natural level of output for the economy.

The vertical axis of the aggregate demand and aggregate supply model measures the overall

Price level

Notice that real GDP trends upward over time but experiences ups and downs in the short run. A period of declining real GDP, such as the blue-shaded period in 1948, is known as a (recession/ expansion/ business cycle)

Recessions

As the price level rises, the cost of borrowing money will (fall/rise/remain) , causing the quantity of output demanded to (rise/fall/remain) . This phenomenon is known as the (exchange rate/ wealth/ interest rate) effect.

Rise/ fall/ interest rate Why AD slopes downward

If consumption is $4000, exports are $300, government purchases are $1000, imports are $400, and investment is $800, then GDP is $5700. a. TRUE b. FALSE

T

Why did the housing bubble crash lead to decreased consumption?

The low interest rates in the early 2000s combined with lax lending practices led to a huge boom in consumer spending and further housing demand. However, once the variable interest rates on these loans began to increase, the boom collapsed. Borrowers started to default, building projects halted leading to more defaults, banks that had too many bad loans collapsed and consumers had less wealth on paper. Recession of 2007-09

What are net exports in a closed country?

There are none. Y = C + I + G

True or False: Short-term fluctuations in real GDP are irregular and unpredictable.

True

What is discretionary income and what can consumers do with it?>

What's left over after taxes. The rest can be saved or invested.

What is brain drain and why does it occur

When people migrate from poor countries to other countries to make money. This would cause the LRAS curve in the poor country to shift left, and for it to shift right in new economy

The aggregate ----- curve shows the quantity of output that households, firms, the government, and foreign customers want to buy at each price level.

demand

Suppose the government passes a law that reduces unemployment benefits in a way that causes unemployed workers to seek out new jobs more quickly. The policy will cause the natural rate of unemployment to ------ , which will: Shift the long-run aggregate supply curve to the right Not affect the long-run aggregate supply curve Shift the long-run aggregate supply curve to the left

fall shift right

For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will ------ , and firms that rely on catalogs will respond by ------- the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected decrease in the price level causes the quantity of output supplied to ------- the natural level of output in the short run.

fall reducing fall below

Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to ---- in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore ------ , and the number of foreign products purchased by domestic consumers and firms (imports) will ------ . Net exports will therefore ----- , causing the quantity of domestic output demanded to -----. This phenomenon is known as the ------ effect.

fall. rise, fall, rise, rise, exchange

Why does SRAS slope up?

firms are affected by prices. When prices increase - sell inventory, hire more labor. When prices decrease - increase inventory, hire less labor. 3 theories: Sticky Wage - wages of workers are slow to respond to changes in price levels in goods. If prices rise while wages stick, then people will be employed. If prices fall, people be fired. Sticky Price - Prices do not change immediately due to menu costs. If money supplies expands, prices will rise and they will sell more since prices are low = hire more. Misperceptions theory - those selling goods may notice a change in the price of that good before noticing the change in the price level in the economy.

Additionally, as the price level rises, the impact on the domestic interest rate will cause the real value of the dollar to ______ in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore _______ , and the number of foreign products purchased by domestic consumers and firms (imports) will ________ . Net exports will therefore _______ , causing the quantity of domestic output demanded to ________ . This phenomenon is known as the ------ effect.

increase, fall, increase, fall, decrease, exchange rate Why AD slopes down

Direction of LRAS curve shift Direction of LRAS Curve Shift Many workers leave to pursue more lucrative careers in foreign economies. For environmental and safety reasons, the government requires that the country's nuclear power plants be permanently shut down.] An investment tax credit increases the rate at which firms acquire machinery and equipment.

left left right

changes needed to increase AS: Inflation expectations ] Tax rates Technology input prices human capital

lower, decrease, improves, decrease, increase

The notion that an increase in the quantity of money will impact the price level but not the output level is known as (price neutrality/ monetary neutrality, quantity theory)

monetary neutrality

What are nominal and real values

quantity of money or price level are measured in terms of dollars. For real - it measures relative prices or quantities - like quantity of goods produced in the economy.

Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to ----, which will: Not affect the long-run aggregate supply curve Shift the long-run aggregate supply curve to the left Shift the long-run aggregate supply curve to the right

rise shift left

As the price level falls, the purchasing power of households' real wealth will------ , causing the quantity of output demanded to ------- . This phenomenon is known as the ------- effect.

rise, rise, wealth Why AD slows down

The short-run quantity of output supplied by firms will rise above the natural level of output when the actual price level ----- the price level that people expected.

rises above

Changes needed to decrease AD: Consumer expectations about future profitability Government spending Interest rates The value of the domestic currency relative to the foreign currency

worsen, decrease, increase, appreciate