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Macro Unit 3 > 3.4-3.6 > Flashcards

3.4-3.6 Flashcards

1
Q

Short-run aggregate supply

A

Wages and resource prices are sticky and WILL NOT change when price level changes.

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2
Q

Long-run aggregate supply

A

Wages and resource prices are flexible and WILL change when price level changes

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3
Q

What type of supply would this example apply to…
Originally 100 units were sold for $1 each. Now they are each sold for $2. The cost of production is $80. Now the total profit is $200- $80= $120. Firms now have an incentive to produce more.

A

Short-run aggregate supply

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4
Q

What type of supply wold this example apply to…
Workers demand higher wages to match the higher prices. Now the cost of production doubles from $80 to $160. Now the profit is $200-$160=$40. Since the price doubles from $1 to $2 and the profit also doubles, businesses are not making an additional profit. They now lose their incentive to produce more.

A

Long-run aggregate supply

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5
Q

Long-run means __ increases but __ stays the same

A

price level; GDP

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6
Q

LRAS is the same as what?

A

PPC

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7
Q

The LRAS curve represents

A

full employment

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8
Q

Shifters of the aggregate supply

A

A permanent change in the production possibilities of the economy.

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9
Q

Shifters of LRAS would be the same shifters as what

A

the PPC

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10
Q

Examples of LRAS shifters

A

Change in resource quantity/quality and change in technology

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11
Q

An advance in technology would shift the LRAS to the

A

right

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12
Q

Plants/businesses burning down will shift the LRAS to the

A

left

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13
Q

The economy can only be in one of three places at a time. What are they?

A

Negative output gap, full employment, positive output gap

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14
Q

If the government increases spending, what happens to AD, AS, PL, and output

A

AD increases to the right, AS stays the same, PL increases, and output increases.

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15
Q

Inflationary gap is also called

A

positive output gap

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16
Q

Inflationary gap

A

The LRAS is to the left of where AS and AD meet. Output is high but the quantity increased. Actual GDP is above potential GDP. Unemployment is less than NRU.

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17
Q

If consumer spending falls what happens to AS, AD, PL, and output

A

AD decreases, AS stays the same, PL decreases, and output decreases

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18
Q

Recessionary gap is also called

A

negative output gap

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19
Q

Recessionary gap

A

Output is low and unemployment is greater than NRU. This means

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20
Q

Recessionary gap

A

Output is low and unemployment is greater than NRU. This means GDP is operating below the potential GDP.

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21
Q

Shifters of Aggregate Demand

A

C (consumer spending), I (investment), G (government actions), and X (net exports)

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22
Q

Shifters of Short-run aggregate supply

A

R (resource prices), A (government actions), and P (productivity)

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23
Q

If there is a negative supply shock what happens to AD, AS, LRAS, PL, and output?

A

AD stays the same, AS shifts to the left, LRAS stays the same, PL increases, and output decreases

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24
Q

Stagflation is also called a

A

Recessionary gap

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25
Q

What is stagflation

A

stagnate economy + economy. (Inflation occurs while the amount produced decreases)

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26
Q

What happens when there is an increase in consumer spending. What happens to AD, AS, LRAS, PL, and output

A

AD increases, AS stays the same, LRAS stays the same, PL increases, and output increases

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27
Q

What happens when a trading partner has a recession? What happens to AD, AS, LRAS, PL, and output?

A

AD decreases, AS stays the same, LRAS does not change, PL decreases, and output decreases

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28
Q

What happens there is a significant increase in the price of oil? what happens to AD, AS, LRAS, PL, and output?

A

AD stays the same, AS decreases, LRAS stays the same, PL increases, and output decreases

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29
Q

What happens when the government increases spending but not taxes? what happens to AD, AS, LRAS, PL, and output?

A

AD increases, AS stays the same, LRAS stays the same, PL increases, and output increases

30
Q

What happens when there is an increase in wages that businesses pay workers? what happens to AD, AS, LRAS, PL, and output?

A

AD stays the same, AS decreases, LRAS stays the same, PL increases, and output decreases

31
Q

What happens when businesses expect inflation? what happens to AD, AS, LRAS, PL, and output?

A

AD stays the same, AS decreases, LRAS stays the same, PL increases, and output decreases

32
Q

What happens when there is a decrease in interest rates for business investment? what happens to AD, AS, LRAS, PL, and output?

A

AD increases, AS stays the same, LRAS stays the same, PL increases, and output increases.

33
Q

What happens when there is an increase in productivity? what happens to AD, AS, LRAS, PL, and output?

A

AD stays the same, AS increases, LRAS stays the same, PL decreases, and output increases.

34
Q

What happens when the country’s currency depreciates? what happens to AD, AS, LRAS, PL, and output?

A

AD increases, AS stays the same, LRAS stays the same, PL increases, and output increases.

35
Q

What happens when the government increases corporate taxes? what happens to AD, AS, LRAS, PL, and output?

A

AD stays the same, AS decreases, LRAS stays the same, PL increases, and output decreases

36
Q

Demand-pull inflation

A

Demand pulls up prices. Consumers want goods and services so they bid up prices. “Too many dollars changing to few goods”

37
Q

Cost-push inflation

A

Higher production costs increase prices.

38
Q

Negative supply shock __ the cost of production and forces the producers to increase the prices.

A

Increase

39
Q

An increase in output and a decrease in inflation would most likely result from what?

A

Increase in labor productivity

40
Q

Stagflation is most likely caused by what?

A

A decrease in aggregate supply

41
Q

If a country’s actual level of output is above the full-employment level of output, this would be described as

A

an inflationary gap

42
Q

Who first proposed that the Classical economists were wrong about price and wage flexibility?

A

J.M Keynes

43
Q

If aggregate demand crosses aggregate supply at the point where the intermediate range ends and the vertical classical range begins, then

A

the economy will have obtained full employment

44
Q

An aggregate demand- aggregate supply graph representing the economy with an inflationary gap is illustrated by

A

a vertical long-run aggregate supply curve to the left of the intersection of the aggregate demand curve and the short-run aggregate supply curve.

45
Q

LRAS represents the full responsiveness of wages to __

A

price level changes

46
Q

What happens to LRAS if there is a chemical spill at a factory resulting in it being cordoned off to reduce public danger for 3 months.

A

LRAS will be unaffected. Would actually result in the SRAS shifting to the left.

47
Q

If a production possibilities curve that bows out from the center shifts to the right, then

A

long-run aggregate supply shifts to the right

48
Q

What may cause a positive supply shock?

A

A technology boom

49
Q

Short-run equilibrium is where

A

The aggregate demand curve and the aggregate supply curve intersect.

50
Q

Long-run equilibrium

A

The aggregate demand curve and the aggregate supply curve intersect on the LRAS curve.

51
Q

If there is an unexpected fall in consumer confidence that leads to a decrease in consumer spending, what will likely happen to both the price level and the output.

A

They will both decrease.

52
Q

If the economy is experiencing an inflationary gap what is happening?

A

The economy is working at a level of output higher than the full-employment output.

53
Q

What would most likely cause stagflation

A

negative supply shock

54
Q

If PL is above the PLe and output is greater than equilibrium output, is the economy facing a recessionary gap or inflationary gap?

A

Inflationary gap

55
Q

Inflationary gap means economy is working __ full employment, the economy is at __ equilibrium, and wages __

A

above; short-run; will rise

56
Q

An increase in capital stock could result in a

A

AS shift to the right and if there is a recessionary gap move it back to long-run equilibrium.

57
Q

What would an increase in the price of oil be considered?

A

Negative supply shock (less to go around)

58
Q

If a market was at full employment equilibrium and the stock market rose sharply, then one could expect

A

increased price level

59
Q

If imports decreased and exports decreased, what effect would it have on the AS/AD model?

A

Net exports would increase resulting in the AD curve shifting to the right.

60
Q

People expect the economy to improve because the last few job reports have been positive. Which curve shifts and what is the reason it shifts?

A

AD shifts to the right because of consumer expectations

61
Q

If the federal government of country x decided to increase taxes, what effect would it have on macroeconomic equilibrium in the short run?

A

Aggregate demand would shift to the left. This causes the PL to decrease and the output to decrease

62
Q

If AD intersects AS in the intermediate range, then an AD shift left will

A

drive the economy deeper into recession

63
Q

If the gas prices increase and the economy eventually faces stagflation what could be the cause?

A

A decrease in spending

64
Q

If real GDP is growing at half the rate as nominal GDP, then

A

inflation is occuring

65
Q

Does an increase in price level change the LRAS curve

A

NO

66
Q

Is there a trade-off between unemployment and inflation in the LRAS curve?

A

NO

67
Q

What shifter of AD will result in the most economic growth?

A

Business investment. More investment -> more consumer goods to buy for less

68
Q

PPC and LRAS both show maximum capacity because

A

They show how much can be produced and what the output currently is.

69
Q

The PPC curve represent full employment but a point inside the curve represents

A

cyclical unemployment.

70
Q

Can the long-run aggregate supply show cyclical unemployment?

A

No it doesn’t show cyclical but it shows full employment.

71
Q

High GDP usually means __ unemployment

A

low

Macro Unit 3 (2 decks)

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