gp.8

what are ways that the fed increases the money supply?

1. purchasing or selling government securities 2. raising or lowering the discount rate 3. change the reserve ratio

calculate the inflation rate using CPI for two consecutive years.

[(cpi y1 - cpi y0)/cpi y0 ] x 100

what is cyclical unemployment caused by?

business cycle, it rises during a recession and falls during an expansion.

calculate the GDP using the expenditure approach

consumption+ net exports + government expenditures + capital investment

what causes cost(push) inflation?

cost(push) inflation is inflation caused by a shift left in aggregate supply. an increase in input costs, will cause aggregate supply curve to shift left and increase the aggregate price level.

when is the cpi measured?

cpi measured on a monthly basis

what will accompany a reduction in aggregate demand? higher unemployment, price level increase, increase in real GDP

decrease in employment

what causes demand (pull) inflation?

demand(pull) inflation is inflation caused by a shift right in aggregate demand.

increasing input costs does what to SRAS?

drives up overall price and lowers GDP.

what does it mean to increase the money supply?

fed purchases government securities and lowers the discount rate

what is the relationship between expansionary monetary policy and a. interest rates b. firm investment c. aggregate demand, d. price level

increasing the money supply will cause interest rates to fall, then firm investment will rise. aggregate demand then rises, and price will eventually rise.

what does a decrease in aggregate supply cause?

output to fall and price level to rise

what does an increase in aggregate demand cause?

output to rise and price level to rise.

increase the money supply and what happens to price level?

price level rises

what is the discount rate?

rate established by the fed reserve for short-term loans to member banks.

what is the ratio of banks reserves to its demand deposits?

reserve ratio

real GDP up overall price level down what happened to SRAS?

shift right

what does the cpi measure?

the costs of a market basket of specific goods commonly purchased by consumers.

what does the inflation rate measure?

the rate at which the overall price level increases

what is structural unemployment?

when individuals do not have the qualifications or skills necessary to fill available jobs

what is demand pull inflation?

when the aggregate demand curve shifts right

overall price level up real GDP down

SRAS shift left

contract valued at x y % interest prices rose by z repayment of k what is the amount worth in real terms, after inflation?

k/(1+y%)

calculate the real interest rate

nominal interest rate minus the inflation rate

true or false. during a period of high inflation, those with a fixed amount of debt will repay their debt with inflated dollars and are thus likely to gain.

true

what is frictional unemployment?

unemployment that arises from workers routinely changing jobs or from workers being temporarily laid off.

what is cost-push inflation?

when aggregate supply curve shifts left.