macro final- romero
MPC
(change in consumption) / (change in income)
MPS
(change in saving) / (change in income)
Why do nations trade?
1. distribution of resources are uneven 2. efficent production rerquires different technologies 3. products are diffrentiated and some people prefer different products
the functions of money
1. medium of exchange 2. unit of account 3. store of value
The change in consumptions (MPC) is 0.75, what is the multiplier?
1/MPS= 1/0.25=4
If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately
14 years
When was the AE Model originated and by who?
1936 by John Maynard Keys used to explain why the Great Depression had happend and how it can end
achieving the fed's target rate of inflation
2%
Savings Schedule
A table of numbers that shows the amounts households plan to save (plan not to spend for consumer goods), at different levels of disposable income.
AE MODEL
Assumes: prices are "sticky" The amount of goods and services produced and the level of employment depend directly on the level of aggregate expenditures (total spending)
The level of aggregate expenditures in a mixed open economy consists of
Ca + Ig + Xn + G.
Rule of 70
Doubling time (in years) = 70/(percentage growth rate).
Multilateral trade agreement
General Agreement on Tariffs and trade (GATT) World trade organization (WTO) European Union (EU) North American Free Trade Agreement (NAFTA)
The domestic opportunity cost of producing 100 pairs of shoes in Germany is 40 bottles of wine. In France, the domestic opportunity cost of producing 100 pairs of shoes is 50 bottles of wine. In this case,
Germany has the comparative advantage in shoes
f the equilibrium level of GDP in a private open economy is $1,000 billion and consumption is $700 billion at that level of GDP, then
Ig + Xn must equal $300 billion.
disposable income
Income remaining for a person to spend or save after all taxes have been paid
expansionary fiscal policy
Increase government spending reduce taxes use some combination of the two
Long run
Input prices vary Output prices vary
Which goods are affected least by cyclical impact?
Nondurable goods
Which of the following is an example of economic investment?
O Railroad buys a new railcars for their trains
The amount of other products that must be forgone or sacrificed to produce a unit of a product?
Opportunity cost
shift in aggregate demand
This is done by increasing government spending to make up for decreased consumer spending.
contractionary fiscal policy,,
a policy designed to decrease aggregate demand and combat demand-pull inflation
Expansionary Fiscal Policy
a policy designed to increase aggregate demand and therefore raise real GDP
principle of comparative advantage
a producer has a comparative advantage in producing a particular product if it can produce at lower opportunity cost than others
aggregate supply
a schedule or curve showing the relationship between a nation's price level and the amount of real domestic output that firms in the economy produce
Aggregate Demand
a schedule or curve that shows the amount of a nations output (real GDP) that buyers collectively desire to purchase at each possible price level
consumption schedule
a schedule showing the amounts households plan to spend for consumer goods at different levels of disposable income
A change in resource inputs
a shift of AS
Increase in worker productivity
a shift of AS
Which of the following would most likely shift the aggregate demand curve to the right?
an increase in stock prices that increases consumer wealth
Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?
an increase in the price of imported resources
as disposable income increases, consumption
and saving both increase.
Recurring increases and decreases in an economy's real GDP over periods of years are called
business cycles.
What are the two goods of the PPF?
capital and consumer goods
An economic system in which property resources are owned by the government
command system
Which of the following is an example of a capital-intensive good?
computers
The difference between max price someone is willing to pay for additional unit of a product:
consumer surplus
GDP can be calculated by summing?
consumption investment government purchases net exports
Which of the following is a tool of monetary policy?
creating new money to pay for bond purchases
contractionary fiscal policy,,,,
decrease government spending increase taxes use some combination of the two
Central bank issues too much money:
demand-pull inflation
what kind of relationship between consumption and income?
direct
roducts that last longer than 3 years
durable goods
economic growth is best defined as an increase in
either real GDP or real GDP per capita.
increase money supply
expansionary monetary policy
Suppose the domestic price (no-international-trade price) of cotton is $0.87 per pound in the United States while the world price is $0.98 per pound. Assuming no transportation costs, the United States will
export cotton
marginal:
extra, additional
Prices for airline tickets change hourly. This would suggest that airline ticket prices are
extremely flexible.
Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and to begin a better job in two weeks with company B. Kyle will be considered
frictionally unemployed. structurally unemployed.
occurs when a country's inflation rate exceeds 50% each month
hyperinflation
If the MPC in an economy is 0.80, government could shift the aggregate demand curve leftward by $48 billion by
increasing taxes by $12 billion
immediate short run
input prices are fixed output prices are fixed
Short run
input prices fixed output prices vary
If the Federal Reserve System buys government securities,
interest rates on the securities will fall.
interest rates and bonds have a _______ relationship
inverse
What type of economy C + IG + G= GDP
mixed close ecnonomy
What type of economy C + IG + Xn + G= GDP
mixed open economy
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is
not in the labor force.
demand-pull inflation
occurs when total spending exceeds the economy's ability to provide output at the existing price level.
Which of the following would most likely shift the aggregate demand curve to the right?
people expect their future real incomes will rise
For economists, the word "utility" means:
pleasure
What type of economy C + IG= GDP
private closed economy
what type of economy C + IG + Xn = GDP
private open economy
Sticky Prices (Inflexible Prices)
product prices that remain in place (or at least for a while) even though supply or demand has changed
Marginal Propensity to Consume (MPC)
proportion of a change in income consumed
Marginal Propensity to Save (MPS)
proportion of a change income saved
if a nation's real GDP increases from $100 billion to $120 billion and its population jumps from 200 million to 240 million, its real GDP per capita will
remain constant.
In the circular flow model, households earn their incomes in the?
resource market
Market failures:
result in overproduction or underproduction of a good
increases to the
right
Graphically, demand-pull inflation is shown as a
rightward shift of the AD curve along an upsloping AS curve.
savings schedule formula
saving= DI-C
increase taxes
shift AD to the left
Decrease in personal taxes
shift of AD
increase government spending
shift of AD
decrease money supply
shifts the AD curve to the left
udden, unexpected changes in demand or supply:
shocks
The two topics of primary concern in macroeconomics are?
short-run fluctuations in output and employment and long-run economic growth.
Bagels and muffins:
substitute goods
The MPC for an economy is
the slope of the consumption schedule or line.
The Dual Mandate
the twin responsibilities of the Federal Reserve, to use monetary policy to ensure price stability and maintain full employment
As it applies to insurance, the moral hazard problem is the tendency for?
those who buy insurance to take less precautions in avoiding the insured risk.
national income
total income earned by everyone in the economy
In resource market, households are the sellers and businesses are the buyers:
true
economic growth is best defined as an increase in?
GDP
Taxes and government spending
fiscal
Tools of Monetary Policy
open market operations, administered rates, forward guidance
achieving the full employment rate of unemployment
3-4%
Shift in aggregate supply
Done by cutting taxes and regulations on businesses with hopes that this will stimulate the production of goods and services.
For which of the following goods and services are prices least sticky?
airline prices
info know by the first party to a contrast not known by the second:
asymmetric information
Which of the following is an example of a land-intensive good?
beef
monetary policy
goal: achieve and maintain price-level stability, full employment, and ecnomic growth
Four resources
land, labor, capital, entrepreneurship
decreases to the
left
Bonds and interest rates
monetary
