Macro Review For Final
Unemployment Rate
(# of unemployment/labor force) x 100
Nominal GDP formula
(Nom.)GDP= C+Ig+G+Xn
The change in consumption (MPC) is .8. What is the multiplier?
5
Rule of 70
A method for determining the number of years it will take for some measure to double, given its annual percentage increase. Example: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation.
Dual Mandate
Achieving full-employment rate of unemployment 3-4% Achieving the Fed's target rate of inflation 2%
Mixed Open GDP formula
C+Ig+Xn+G=GDP
Private Open GDP formula
C+Ig+Xn=GDP
Private Closed GDP formula
C+Ig=GDP
Why do Nations trade
Distribution of resources uneven Efficient production requires different technologies Products are differentiated
Production Possibilities Model definition
Economic model that shows different combos of 2 goods that an economy can produce
Damand-Pull inflation
Excess spending relative to output
Increase gov. spending
Expansionary fiscal policy
Money supply rises, interest rates...
Fall
If the Fed. sells bonds, monetary supply
Falls
Multilateral Trade Agreements
General Agreement on Tariffs and Trade (GATT) World Trade Org. (WTO) European Union (EU) North American Free Trade Agreement (NAFTA)
Mixed includes
Ig and G
Short Run
Input prices fixed, Output vary
Immediate Short Run
Input/Output prices fixed
Long Run
Input/Output prices vary
Interest Rates and Bonds have a _______ relationship.
Inverse
Functions of Money
Medium of Exchange Unit of Account Store of Value
Decrease Money Supply
Monetary Policy
Monetary Policy
Monetary policy addresses interest rates and the supply of money in circulation, and it is generally managed by a central bank.
Contractionary Fiscal Policy
Policy designed to decrease aggregate demand and combat demand-pull inflation
Expanisonary Fiscal Policy definition
Policy designed to increase aggregate demand and raise real GDP
How we measure how economy is doing
Real GDP Unemployment Inflation
Decrease money supply
Restrictive Monetary policy
If the Fed. buys bonds, monetary supply...
Rises
Aggregate Supply
Schedule/curve showing relationship between nation's price level and amount of real domestic output firms produce
Aggregate Demand
Schedule/curve that shows amount of nation's output that buyers collectively desire to purchase at each possible price level.
Increase gov. spending does what
Shift Aggregate demand right
Increase money supply does what
Shifts Aggregate Demand right
Increase taxes does what
Shifts Aggregate demand left
Decrease money supply does what
Shifts Aggregate demand to the left
Expansionary Fiscal Policy does what
Shifts Aggregate demand to the right
Who implements monetary policy
The Feds.
Who implements Fiscal Policy
The Government
T?F We need to increase/decrease taxes by an amount larger than our GDP gap.
True
As disposable income increases both consumption and saving
increase
If the federal reserve system buys government securities
interest rates on securities will fall
Demand-pull inflation is shown as
rightward shift in AD curve along with upsloving AS curve
4 stages of business cycle
Trough Peak Recession Expansion
Increased Money Supply
Expansionary Monetary Policy
Increase Gov. Spending
Fiscal Policy
Increase taxes
Fiscal Policy
Fiscal Policy
Fiscal policy addresses taxation and government spending, and it is generally determined by government legislation.
Types of Unemployment
Frictional Structural Cyclical
Opportunity Cost
Giving something up for something else
MPS
Change in saving/change in income
Increase Taxes
Contractionary fiscal policy
Income Approach
Count income derived from product
Expenditures Approach
Count sum of money spent buying the final goods
The change in consumption (MPC) is .75. What is the Multiplier?
4
Cost-Push inflation
Caused by rise in per-unit production costs
MPC
Change in consumption/change in income
Mixed Closed GDP formula
C+Ig+G=GDP
Savings Schedule
Table showing how much households PLAN TO SAVE
Consumption Schedule
Table showing how much households PLAN TO SPEND
Productions Possibilities Model (X and Y axis)
X= Consumer goods Y= Capital goods
Open includes
Xn
