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Macro Unit 3 > 3.1-3.3 > Flashcards

3.1-3.3 Flashcards

1
Q

Aggregate

A

added all together

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2
Q

Aggregate demand

A

all goods and services (real GDP) that buyers are willing and able to purchase at different price levels

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3
Q

Who does aggregate demand account for?

A

Everyone and everything they buy

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4
Q

What is the relationship between price level and real GDP on the Aggregate Demand curve?

A

An inverse relationship

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5
Q

Demand=

A

Down

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6
Q

Does aggregate demand ever affect aggregate supply?

A

No, never

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7
Q

Travel up the curve means

A

Inflation

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8
Q

Travel really far down the curve means

A

Deflation

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9
Q

Travel somewhat down the curve

A

Decrease of inflation

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10
Q

AD=

A

Real GDP (C+I+G+Xn)

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11
Q

The wealth effect

A

Higher price levels reduce the purchasing power of money. This decreases the quantity of expenditures.
Lower price levels increase the purchasing power and increase expenditures.

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12
Q

The wealth effect is also known as…

A

The balance effect

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13
Q

Interest rate effect

A

Price increases, lenders have to increase interest rates to get a REAL return on their loans. This leads to the discouragement of consumers and *business investments

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14
Q

Why is it important for businesses to invest in new resources? In other words why do we want businesses to NOT be discouraged with in increase of interest?

A

When businesses buy new resources they are continuing to grow their company and become more productive. When they are more productive, more products are made in less time. This allows for consumers to buy more for less. If they don’t then there will be no economic growth, period.

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15
Q

Foreign Trade Effect

A

If U.S price levels rise, then foreign buyers will buy less US goods and Americans will have to buy more foreign goods. Exports fall and imports rise causing Real GDP demand to fall (Xn decreases)

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16
Q

What do the wealth effect, income effect, and the foreign trade effect says the AD curve does?

A

Slope downwards

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17
Q

What is the big shifter of aggregate demand?

A

An increase or decrease of spending.

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18
Q

Increase in spending is a shift to the

A

right

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19
Q

Decrease in spending is a shift to the

A

left

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20
Q

Disposable income

A

income remaining after taxes and other mandatory costs have been paid. One could either save or spend this money

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21
Q

What are some changes in consumer spending that would shift the aggregate demand curve?

A

Change in disposable income, consumer expectations, household indebtedness, and taxes.

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22
Q

Increase in disposable income results in a shift to the

A

right

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23
Q

Decrease in disposable income results in a shift to the

A

left

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24
Q

If consumers expect a recession they will

A

save their money in case they need it later on resulting in a shift to the left

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25
Q

If consumers are more in debt the shift is to the

A

left

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26
Q

If consumers are less in debt the shift is to the

A

right

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27
Q

If there is an increase in income taxes the curve shift to the

A

left

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28
Q

If there is a decrease in income taxes the curve shifts to the

A

right

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29
Q

What are examples of changes in investment spending?

A

Real Interest rates, Future Business expectations, productivity and technology, and business taxes.

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30
Q

If the interest rate (price of borrowing money) is high the investment goes __ and shifts the curve to the __

A

down and left

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31
Q

If Interest rate (price of borrowing money) is low the investment goes __ and shifts the curve to the __

A

up and right

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32
Q

If businesses have high expectations they will buy __ and shift the curve to the __

A

more and right

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33
Q

If businesses have low expectations they will buy __ and shift the curve to the __

A

less and left

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34
Q

If productivity increases or technology increases the curve will shift to the

A

right

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35
Q

If productivity decreases or technology decreases the curve will shift to the

A

left

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36
Q

Higher business taxes shift to the

A

left

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37
Q

Lower business taxes shift to the

A

right

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38
Q

More government spending

A

shifts to the right (increases real GDP think about the equation)

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39
Q

Less government spending

A

shifts to the left (decreases real GDP think about the equation)

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40
Q

What are examples of a change in net exports

A

The exchange rate and National income abroad

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41
Q

If the US dollar depreciates (is less) relative to the euro, our products seem like they are on sale resulting in a __ for the US

A

increase in net exports

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42
Q

If the euro depreciates (is less) relative to the US dollar, their products look like they are on sale resulting in a __ for the US

A

decrease in net exports

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43
Q

When a major importer is in a recession…

A

the net exports for that country will decrease

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44
Q

Multiplier Effect

A

An initial change in spending will set of a spending change that is magnified in the economy

45
Q

Example of multiplier effect

A

Bob buys $100 of Jason’s product-> he buys $100 of Sarah’s product-> she buys $100 of Jess’s product
Result= increase of consumer spending by $300

46
Q

If the government spends $5 million, will AD increase the same amount?

A

No, the AD will increase more because of the multiplier effect.

47
Q

How much will the AD increase when the government spends $5 million?

A

It depends on how much of the new income consumers choose to spend and save.

48
Q

Will saving more result in the AD and spending, increasing a by lot or increasing less

A

Increasing less

49
Q

Will saving less result in the AD and spending increasing by a lot or increasing less

A

Increasing by a lot

50
Q

Marginal Propensity to Consume (MPC)

A

How much people consume rather than save when there is a change in disposable income. (Always expressed as a fraction or decimal)

51
Q

MPC=

A

Change in consumption/change in disposable income

52
Q

EX of MPC: If you receive $100 and spend $50 what is the MPC

A

0.5

53
Q

Marginal Propensity to Save (MPS)

A

How much people save rather than consume when there is a change in disposable income. (Always expressed as a fraction or decimal)

54
Q

EX of MPS: If you receive $100 and save 70 what is the MPS

A

0.7

55
Q

How do you calculate the spending multiplier?

A

1/MPS or 1/1-MPC

56
Q

If the government spends $5 million what is the change if the multiplier is 2?

A

10 million dollars

57
Q

Total change in GDP

A

Multiplier times Initial Change in Spending

58
Q

Autonomous consumption ->

A

MPC

59
Q

Autonomous consumption must be

A

spent on necessities

60
Q

Tax cuts

A

The multiplier effect also applies when the government cuts or increases taxes.

61
Q

Changing taxes has more or less of an impact than government spending?

A

Less

62
Q

Tax multiplier =

A

MPC time 1/MPS or MPC/MPS

63
Q

Total change in GDP (Tax Multiplier)

A

Tax multiplier times Initial change in taxes

64
Q

Aggregate Supply

A

The amount of goods and service (GDPr) that all firms produce in an economy at different price levels.

65
Q

Short-run aggregate supply

A

wages and resources are stuck and WILL NOT change as price levels change

66
Q

Long-run aggregate supply

A

wages and resources are flexible and WILL change as price levels change. Will eventually adjust for inflation.

67
Q

Why does aggregate supply slope downward?

A

when price level goes up, businesses have an incentive to produce more in the short run (to make more profit)

68
Q

What are the shifters of of aggregate supply?

A

Change in resources of resource prices, change in government actions, and change in productivity.

69
Q

Increase of domestic or imported resources causes the curve to shift

A

left

70
Q

Decrease of domestic or imported resources causes the curve to shift

A

right

71
Q

If factors of production become more expensive then the supply

A

decreases

72
Q

If factors of production become cheaper then the supply

A

increases

73
Q

Supply shock

A

an unexpected event that will either increase the amount of resources to go around or limit the amount of resources passed around.

74
Q

Negative supply shock

A

less to go around; price increases; supply decreases

75
Q

Positive supply shock

A

more to go around; price decreases; supply increases

76
Q

People expect higher prices then

A

supply decreases and resources/wages are more expensive

77
Q

People expect lower prices then

A

supply increases and resources/wages are cheaper

78
Q

More taxes on businesses causes

A

a decrease in supply

79
Q

Less taxes on businesses causes

A

an increase in supply

80
Q

Subsides decreased or taken away causes

A

a decrease in supply

81
Q

Subsides given or increased causes

A

an increase in supply

82
Q

Inspections/regulations leads to a slower production process which results in the curve shifting to the

A

left

83
Q

New technologies like robots shift the curve to the

A

right

84
Q

Things like computer viruses cause the curve to shift to the

A

left

85
Q

Aggregate demand is typically plotted on a graph of the economy where the X-axis is labeled with a measure of output that factors out inflation. What is the proper label for the X-axis?

A

Real GDP

86
Q

Aggregate demand, on a standard Macroeconomics graph normally

A

slopes down to the right

87
Q

The largest proportion of aggregate demand in the U.S economy is

A

consumption

88
Q

The aggregate demand curve for a nation’s output is

A

downward sloping, inversely related to the average price level.

89
Q

What is one legitimate explanation to why the Aggregate demand curve slopes down?

A

Real Balance effect (wealth effect)

90
Q

If consumers are feeling poorer due to price level increases but unemployment has not increased then this means the AD curve

A

has likely shifted right of the vertical part of the Aggregate supply curve.

91
Q

What describes why the substitution effect is not a good example of why aggregate demand slopes negatively?

A

There is no substitution effect for domestically produced goods due to price level decreases

92
Q

What is the best definition of consumption in macroeconomics?

A

All purchases of domestically produced goods and services by domestic households

93
Q

What is the best example of the wealth effect theory in macroeconomics?

A

The price level increases, thereby making demanders feel poorer so they decrease demand for output

94
Q

What most closely describes the Interest-rate effect at work in the economy?

A

interest rate increases are caused by increased transactional demand due to higher price levels.

95
Q

If the marginal propensity to consume (MPC) increases, what will happen to consumption?

A

Increase for each income increase

96
Q

Suppose a teacher receives a $1000 bonus, but spends $900 and saves $100. What is the marginal propensity to save (MPS)?

A

0.1

97
Q

If national income in a country is 10 billion dollars and 2 billion dollars of this is saved, what is the average propensity to consume?

A

0.8

98
Q

Suppose Sally earns $50,000 per year. If Sally gets an additional $1000 of bonus money and buys an $800 flat panel TV and saves the rest, her marginal propensity to consume is

A

0.8

99
Q

If the government gives taxpayers a 5 billion tax decrease and citizens save 1 billion dollars of this tax decrease, what is the marginal propensity to consume (MPC)?

A

0.8

100
Q

What is NOT one of the factors of the aggregate supply curve?

A

Price level

101
Q

Besides more and better education, Human Capital expansion can also mean,
1. Immigrant worker increase
2. Better health and nutrition for the population
3. Increased population of retirees

A

1 and 2 only

102
Q

An unplanned increase of inventories would suggest that Short Run Aggregate supply

A

is increasing relative to demand

103
Q

What event would cause short run aggregate supply to shift to the left?

A

An increase in the price of steel and other commodities

104
Q

One reason why wages may remain fixed in the short run is because

A

of fixed-wage contracts

105
Q

In the Long run, an economy will not stay working beyond full employment output levels because

A

higher wages cause a short run aggregate supply curve to shift to the left

106
Q

A general increase in health insurance costs will

A

most likely decrease aggregate supply

107
Q

Suppose a program that gave tax credits to domestic oil manufacturers expired and the credits pertained to oil exploration and extraction. Ceteris paribus, which of the following is true of aggregate supply?

A

Aggregate supply will decrease since production costs will effectively increase.

108
Q

If the productivity of workers falls, then

A

the Aggregate Supply curve shifts left indicating decreased supply

109
Q

Suppose the minimum wage was not changed for 8 years and during that time, the short run aggregate supply curve had shifted left. What is true?

A

Minimum wage workers have less purchasing power then before the shift.

Macro Unit 3 (2 decks)

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