Macro 20, 21, 22 – Flashcards
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A short period of falling incomes and rising unemployment is called a
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Recession
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Most economists use the aggregate demand and aggregate supply model primarily to analyze
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Short-run fluctuations in the economy.
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As recessions begin, production
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Falls and unemployment rises.
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As the price level rises
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People will want to buy fewer bonds, so the interest rate rises.
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Other things the same, as the price level falls,
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A dollar buys more domestic goods.
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Other things the same, as the price level falls, the real value of
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Rises, and interest rates fall.
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Other things the same, as the price level rises, exchange rates
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And interest rates rise.
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Other things the same, an increase in the price level makes the dollars people hold worth
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Less, so they spend less.
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Other things the same, if the price level falls, households
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Increase foreign bond purchases, so the supply of dollars in the market for
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Other things the same, a decrease in the price level causes the interest rate to
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Decrease, the dollar to depreciate, and net exports to increase.
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Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to
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Decrease consumption, which shifts aggregate demand left.
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Other things the same, an increase in the amount of capital firms wish to purchase would initially shift
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Aggregate demand right.
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An increase in the money supply
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And the investment tax credit both cause aggregate demand to shift right.
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Aggregate demand shifts left when the government
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Cuts military expenditures.
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The long-run aggregate supply curve shifts right if
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Technology improves.
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If speculators lost confidence in foreign economies and so wanted to buy more U.S. bonds
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the dollar would appreciate which would cause aggregate demand to shift left.
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A candidate for political office announces the following policies which, he says, economics clearly demonstrates will lead to higher output in the long run. 1. reduce immigration from abroad 2. make trade more open between the US and other countries.
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1 shifts long-run aggregate supply left, 2 shifts long-run aggregate supply right.
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Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. To explain this
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Both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must shift farther.
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According to the sticky-wage theory of the short-run aggregate supply curve, if workers and firms expected prices to rise by 4 percent, but instead they rise by 2 percent, then
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employment and production fall.
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Other things the same, the aggregate quantity of output supplied will increase if the price level
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Is higher than expected so that firms believe the relative price of their output has
increased.
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Assuming that a is positive, theories of short-run aggregate supply are expressed mathematically as
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Quantity of output supplied = natural rate of output + a(actual price level - expected price
level).
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Which of the following shifts both short-run and long-run aggregate supply left?
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A decrease in the capital stock
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Which of the following would shift the short-run aggregate supply curve to the right?
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A decrease in the expected price level.
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Which of the following has been suggested as a cause of the Great Depression?
a. a decline in the money supply
b. a decrease in stock prices
c. the collapse of the banking system
d. All of the above are correct.
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All of the above are correct.
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Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic
contraction caused by a shift in aggregate supply could use policy to shift
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Aggregate demand to the right.
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Imagine the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then we would expect that in the short run,
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The price level will fall, and real GDP might rise, fall, or stay the same.
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Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, then we would expect that in the short run, real GDP will
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Fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.
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Phillips found a negative relation between
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Wage inflation and unemployment.
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The theory of liquidity preference is most helpful in understanding
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The interest-rate effect.
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If the Fed conducts open-market purchases which of these increases in the short run: interest rates, prices, and investment spending
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Prices and investment spending, not interest rates
