Macro Final

interest rate at which banks borrow from other banks

federal funds rate

a liquidity trap occurs when the LM curve is ___

flat

monetary policy is pushing on a string because the LM curve is

flat

to fix the problem of changing quality of goods and services in the CPI calculation that BLS uses is

hedonics

as the real wage increases in the Classical model, under the sub effect, then individuals move to ____ indifference curves and choose to work ____

higher more

when prices are lower than expected, wages are ___ which increases ___ because people work more

higher output

monetarists believe that an increase in MS leads to ___ and ____ ____

inflation increased output

phillips curve shows an inverse relationship between ____ and ____

inflation unemployment

in 2008 the FED got a new tool to use in monetary policy that was ___ on reserve

interest

the monetary base is now greater than the money supply because the money multiplier is ___ than one because individuals are ___ cash and banks are holding ___ reserves

less holding excess

classical: take care of the ____ run and the ____ run will take care of itself

long short

according to keynes theory of money demand, a low interest rate increases the likelihood of a capital ___ on bonds and _____ the likelihood that individuals will hold money

loss increases

when the nominal GDP is falls below real GDP that means that prices were ___

lower

change in consumption associated with a change in income

marginal propensity to consume

Function of money ____ of exchange ____ of value ____ of account

medium store unit

buying a cup of coffee with a dollar bill represents the use of money as what type of function

medium of exchange

what kind of policy is important to monetarists? what does this determine

monetary policy aggregate demand

in the monetarist view, ___ is the dominant influence on AD Ys is determined by ___ ___ levels

money expected price

when the expected price is less than the actual price, people work ___ because the real wage is ____

more higher

output and employment determined by real supply-side factors and people base their decisions on the expected wage

natural rate theory

when people expect higher prices is there an impact on output in the new classical model

no

what are the 2 key ideas behind new classical 1. agents ___ or act in their own self interest 2. markets ____ and unemployment is voluntary

optimize clear

what are the two conditions of monetarists and new classicals 1. agents ___ 2. markets ___

optimize clear

the unemployment rate is calculated by dividing the # of unemployed by the labor force, which is represented by ___ + ___ time + ____ people

part full unemployed

what 3 people does the labor force consist of

part, full, unemployed

when changes are anticipated by rational agents, the ___ level changes but ___ remains the same unanticipated change will shift ___ but not ___

price output Yd, Ys

a profit maximizing firm hires labor until the ___ wage equals the ___ ___ of ____

real marginal product of labor

time it takes to learn that we are in a recession

recognition lag

when the Fed purchases gov securities the bank receives ____ that can be used to make additional loans

reserves

a decline in taxes shifts the IS curve to the ___, ____ interest rates and income

right increasing

in the new classical model monetary and fiscal policy do not affect AD even in the ___ ___ this is becuse of ___ ____

short run rational expectations

compared to a keynesian model, the open economy model in which imports are a function of income has an investment multiplier that is ___

smaller

in the classical model, output is determined by ___ factors and Ns and Nd are dependent on the __ wage, which is given by perfect information and is flexible. aggregated demand is determined by ___ level which is represented by MV = PY

supply real price

what are te 4 cost push factors that affect output and employment in the real business cycle model

tech environment import prices taxes

what doesn't change the IS curve but changes the LM curve

the money supply

average number of times that a dollar is used in purchasing final goods and services

velocity

when people expect a change in prices, AS shifts to ____

vertical

suppose that for an economy investment was equal to 100 government spending was equal to 75 taxes were fixed at 100 and consumption = 50 + 0.5Yd what is the equilibrium level of Y? what is the value of the government expenditure multiplier? of the tax multiplier? suppose that investment increase by 20 units. what would be the new level of income? illustrate this on the AE diagram

y = 1/1-b [a-bT+I+G] = 350 2 -1 2 x 20 = 40 350 + 40 = 390

what is the equation for equilibrium level of income with respect to the simple Keynesian closed-economy model

Y = (1 / 1-b)) (a-bT+I+G)

new guys use MGTI to fit in, monetarists use money supply to determine

demand

commerical banks can borrow reserves from the Fed at the

discount rate

according to keynes the level of consumer expenditures was a stable function of

disposable income

new classical ys = yd =

expected M,G,T,I actual M,G,T,I

what is AS a functinon of in the New classical model? ad?

expected money, gov, tax, investment actual money, gov, tax, investment

Monetarist ys= yd=

expected price level money supply

when the total product increases from 40 to 50, and labor increases from 3 to 4, what is the marginal product of labor

10

rate of inflation for the year, if the CPI for the previous year is 120 and the current year is 125

125 - 120 / 120 = 4.2%

children under 16 - 1000 jailed - 10 part time - 1200 full time - 1690 unemployed - 500 not in labor force - 600 unemployment rate labor force participation rate

14.8% 85%

when the aggregate expenditure multiplier is 0.75 and the decrease in investment is 50, what is the change in income

200

earn a $1500 salary in 1932 where the CPI was 14, and the CPI is now 240. what is the approx equivalent salary today

25800

the nominal GDP increased from $2 trillion to $4 trillion and index of prices increased from 100 to 150. What expresses 1996 GDP in terms of 2002 prices?

4 x 100 / 150 = 2.67 trillion

if the price index in BG is 100 and the price index is 158, what would be the equivalent in Boston to a $50,000 salary in BG

79000

what is the acronym to calculate GDP

CIGNX

3 rounds of deposit expansion and final change in money supply when Fed conducts an open market purchase of $20,000 with the RR ratio at 0.25 what is the equation for final change in money supply

Deposits A: 20,000 RR: 15,000 ER: 15000 Deposits B: 15,000 RR: 3750 ER: 11250 Deposits A: 11250 RR: 2812.5 ER: 8437.5 change in MS = 1/rr x change in deposits = 4 * 20000 = 80000

a fall in autonomous investment will shift the ___ curve to the ___ towards ___ interest rates and output

IS left lower

Classical ____ determines the price level Ys is ____ Yd is determined by ___ ___

MV = PY vertical money supply

if the money supply increased w velocity constant, ___ would increase if Y remained constant

P

in the Austrian model, a reduction in consumption to increase savings and investment shifts the ____ out leading to ____ output and income

PPF increased

what determines output in Keynesian model

autonomous expenditures

in keynesian, demand is determined by ___ ____ and determines output and employment and prices and wages are ____

autonomous expenditures sticky

when the fed increases interest rates but people expect it where does the LM curve fall

between the other two

the ____ reports the GDP for the year

bureau of economic analysis

the money supply consists of _____, checkable ____, and travelers checks

currency deposits

a decrease in money supply would ___ aggregate demand

decrease

increase in interest rates, ____ in price, ____ in output, ____ in unemployment

decrease increase

a shift in the LM curve to the left could be caused by a ____ in the money supply, a ___ in money demand, and a ____ price level

decrease increase increase

increase in money supply ____ in discount rate ____ in reserve requirements ____ of gov securities

decrease purchase

if the fed increases the money supply at the same time government spending increases then ____ must increase

income

classicalists believed that an increase in government spending financed through borrowing would lead to an ___ in interest rates and ____ ___ of private investment spending

increase crowding out

increasing the money supply ___ reserves and ___ interest rates

increase lower

a higher level of income in the Keynesian model of the money market ____ money demand and ____ the interest rate

increases

an increase in the money supply in the monetarist/friedman viewpoint does what to prices and output

increases

a decrease in money stock ____ the interest rate and ____ income

increases decreases

the LM curve slopes upward because as income ____, the ___ ___ rises which increases __ ___

increases money demand interest rates

in the classical model, a rise in the marginal income tax rate would shift the labor supply curve to the ___ and ___ equilibrium labor

left reduce