Chapter 8- Economics Test Questions – Flashcards
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Buying side of the economy
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Aggregate Demand
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Producing Side of the economy
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Aggregate supply
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Production in the short-run
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Short-run Aggregate supply
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Production in the long-run
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Long-run aggregate supply
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Aggregate Demand
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The quantity demanded of all goods and services (Real GDP) at different levels, ceretis paribus
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Aggregate Demand (AD) curve
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A curve that shows the quantity demanded of all goods and services (Real GDP) at different price levels, certeris paribus.
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Real Balance Effect
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The change in the purchasing power of dollar-denominated assets that results form a change in the price level
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Monetary Wealth
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The value of a person's monetary assets. Wealth, as disntigusihed from monetary wealth, refers to the value of all assets owned, both monetary and non monetary. In short, a person's wealth equals his or her monetary welaht (e.g. 1000 cash) plus non monetary wealth (e.g. a car or a house)
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Purchasing Power
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The quantity of goods and services that can be purchased with a unit of money. Purchasing power and the price level are inversely related: As the price level goes up (down), purchasing power goes down (up).
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Interest Rate Effect
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The changes in household and business buying as the interest rate changes (in turn, a reflection of a change int eh demand for or supply of credit brought on by price level changes)
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International Trade Effect
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The change in foreign sector spending as the price level changes
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What are the four factors that affect consumption?
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Wealth, expectations about future prices and income, the interest rate, and income taxes
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Wealth
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The value of all assets owned, both monetary and non monetary
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What are the three facts that can change investment?
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1. Interest Rate 2. Expectations about future sales 3. Business taxes
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What two factors can change net exports?
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1. Foreign real national income 2. Exchange rate
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Exchange Rate
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The price of one currency in terms of another currency
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Appreciation
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An increase in the value of one currency relative to other currencies
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Depreciation
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A decrease in the value of one currency relative to other currencies
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Velocity
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The average number of times a dollar is spent to buy final goods and services in a year.
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Aggregate Supply
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The quantity supplied of all goods and services (Real GDP) at different price levels, certeris paribus.
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Short-Run Aggregate Supply Curve
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A curve that shows the quantity supplied of all goods and services (Real GDP) at different price levels, certeis paribus.
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Why is the SRAS curve upward sloping?
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1. Sticky Wages- inflexible, contracts 2. Worker Misconceptions
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What can change Short- Run aggregate supply?
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1.Wage rates 2. Prices of nonlabor inputs 3. Productivity 4. Supply Shocks
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Natural Real GDP
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The Real GDP that is produced at the natural unemployment rate. The Real GDP that is produced when the economy is in long-run equilibrium
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Long-Run Aggregate Supply (LRAS) curve
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The LRAS curve is a vertical line at the level of Natural Real GDP. It represents the output the economy produces when wages and prices have adjusted to their final equilibrium levels and when workers do not have any relevant misperceptions.
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Long-Run Equilibrium
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The condition that exists in the economy when wages and prices have adjusted to their (final) equilibrium levels and when workers do not have any relevant misperecpetions. Graphically, long-run equilibrium occurs at the intersection of the AD and LRAS curves.
