Chapter 29 Stuff

Question 1

4 Components of Aggregate Demand

Answer 1

1. Consumer spending
2. government expenditures
3. Net exports
4. Gross Domestic investments

Question 2

Four components of aggregate Supply

Answer 2

1. Productivity
2. Cost of production or matierals
3. Government regulations
4. Capital Stock

Question 3

What is happening on the LRAS curve

Answer 3

Optimal Allocation/Full Employment

Question 4

What are the sub categories of Gross Domestic Investment

Answer 4

1. New Contruction
2. New Technology
3. Business Inventory

Question 5

Define Cost-Push Inflation

Answer 5

When SRAS shifts to the left by the cost of production and price level increases.

Question 6

Define Real Gross Domestic Product

Answer 6

300-400 consumable products

Question 7

Define Expansionary Fiscal policy

Answer 7

Used in a recessionary state

• Decrease personal taxes, so consumer spending can rise
• Increase Government Spending

Question 8

Define Contractionary Fiscal Policy

Answer 8

Used in an inflationary state

• Decrease Government Spending
• Increase personal taxes

Question 9

Define Economics Shocks

Answer 9

Fluctuations in the economy (periods)

-Periods include, depression, recession, expansionary, peak

Question 10

Define Net Exports (Xn)

Answer 10

Trading of products/services between countries

• Positive Xn = Exports exceed imports
• Negative Xn= Imports exceed Exports.

Question 11

Define Demand-Pull Inflation

Answer 11

the increase demand causing the economy to move into an inflationary state

Question 12

Define interest rates

Answer 12

the cost of borrowing money

Question 13

Crowding out

Answer 13

investors are discouraged from investing as much due to higher interest rates

Question 14

real wages

Answer 14

change in wages/incomes over time

Question 15

Investment Demanded Seesaw effect

Answer 15

1. Price level increases
2. crowding out occurs
3. investors invest less
4. AD decreases
5. Price level decreases
6. crowding In occurs
7. investors invest more
8. AD increases
9. Repeat

Question 16

What does movement along the Investment demand curve mean?

Answer 16

Left means- crowding out

Right means- crowding in

Question 17

Crowding in

Answer 17

investors are encouraged from investing as much due to lower interest rates

Question 18

Define the Real Balances Effect completely.

Answer 18

As price level increases consumers spending will decrease 
-Asset Value Declines
 -Houses, Cars, etc.
-Purchasing Power declines
-Standard of living decreases
(and vice versa)

Question 19

Define the Interest Rate Effect

Answer 19

As price levels increase, investors will spend less seeing their investment as less profitable. (and vice versa)

Question 20

Foreign Purchases Effect

Answer 20

As the prices level increases, Xn will decrease (and vice versa)

Question 21

Two basic factors that affect net export spending

Answer 21

National Income Aboard

Exchange Rate

Question 22

The underlying factor that affects input prices

Answer 22

Domestic Resource Prices

Question 23

Two factors affect the legal-institutional environment

Answer 23

Business Taxes/subsides

Government Regulation

Question 24

International seesaw Effect

Answer 24

1. Price Level Increases
2. Our goods/services are more expensive
3. Our Trading Partners buy less of goods/services
4. Xn decreases
5. AD decreases
6. Price Level decreases
7. Our goods/services are cheaper
8. Our Trading Partners buy more of goods/services
9. Xn increases
10. AD increases
    Repeat

Question 25

What effect best explains the downward slope of the aggregate demand curve.

Answer 25

Interest rate effect

Question 26

A decrease in expected returns on investment will most likely shift the AD curve where?

Answer 26

Left because Ig will decrease

Question 27

If the dollar appreciates in value relative to foreign countries:

Answer 27

Foreign buyers will find US goods are becoming more expensive

Question 28

As national income in other nations decreases, aggregate demand in our economy

Answer 28

Decreases because our exports will decrease.

Question 29

Define Required Reserve Rates

Answer 29

Percentage of money held by bank for customers that demand their money

Question 30

Define Discount Rate

Answer 30

The interest rate that the FED charges banks to borrow money.

Question 31

Define Auction Faculty

Answer 31

FED Auctioning Money, Private Proposals from different banks that state how they will spend the money and puts more into the economy.

Question 32

Define Bonds

Answer 32

A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.

Question 33

List the four Tools for Expansionary Monetary Policy (Used in a Recessionary State)

Answer 33

- Lowering required reserve Ratios - Decreasing Discount Rates - Buying Bonds/Securities in Open Market Operations - Increasing Auction Faculty

Question 34

Define Income Multiplier Effect

Answer 34

effect on national income that increases demand after a can increase in demand