macro final- romero

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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


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