The Goods Market Flashcards
1
Q
What does the goods market assume?
A
Firms produce the same good
Firms will meet demand
Closed economy
Investment & government spending are exogenous
2
Q
Describe money:
A
A medium of exchange, store of value and unit of account
3
Q
What are determinants of the money supply?
A
Currency and checks
4
Q
What happens if the central bank purchases bonds?
A
Expansionary policy:
Price increases
Returns fall
Money demand increases
5
Q
What is the liquidity trap?
A
Inability to reduce the interest rate when it is very close to 0
6
Q
What is a bank run?
A
Depositors withdraw so much money that the bank fails
7
Q
Why does GDP increase over time?
A
Production increases over time
Price increases over time
