Macro exam Flashcards
GDP
Total value of all final goods and services produced for the marketplace in a certain time period within a nation’s borders
AD
Total spending on goods and services in a period of time at a given price level (REAL GDP DEMANDED at a price level)
Changes in AD
Changes in components of AD
Expectations, fiscal & monetary policy
Components of AD
Change in consumption (income tax, i.r., wealth, confidence)
Household indebtedness
Expectations (inflation, income)
Investment
Government spending
Net exports (exchange rate, inflation, protection vs liberalization)
SRAS shifts
Wage rate
Raw materials
Price of imports
Government taxes / subsidies
Long run
The time frame that is sufficiently long for all adjustments to be made so that real GDP equals potential GDP and there is full employment
Supply-side policies
Policies, designed to increase the productive capacity of the economy, shifting LRAS to the right
Interventionist SSPs
Spending on education, healthcare, infrastructure
Subsidies to firms for investment, research
However time lags, expensive
Market based SSPs
Lower tax
Reduce benefits & trade union power
Competition: deregulation, trade liberalization (no subsidies, tariffs, quotas)
However no guarantee of success, deregulation, inequality bcs taxes, time lags
The economic cycle
Periodic fluctuations in economic activity measured by changes in real GDP
Monetary policy
Set of official policies governing the supply of money and the level of interest rates in an economy
Money supply manipulation
Changing reserve requirement
Discount rate
Market operations (bonds)
Expansionary monetary cons
Time lag
Ineffectiveness (low confidence, liquidity trap)
Impact on savers
Inflation
Pros of monetary policy
Quick to implement
No political intervention
Small changes possible
Fiscal policy
Government’s use of taxing and spending to keep the economy stable
Cons of fiscal policy
Time lag (democratic process + seeing changes)
Political pressure
Debt
Effect on exports
Crowding-out
Government debt
Accumulation of all the budget deficits over the years
Categories of unemployment
Disequilibrium unemployment
Real wage unemployment
Demand-deficient unemployment
Equilibrium unemployment
Frictional, structural, seasonal
Solving with supply-side policies
Structural unemployment
New technology, cheaper labor force abroad, taste changes
Training, providing information
Reducing unemployment benefits, deregulation
Inflation
Persistent increase in prices in an economy in a year
Demand pull inflation
Falling interest rates
Falling taxes
More G
Weaker exchange rates
Contractionary monetary
Cost push inflation
Higher raw material prices / imported
Higher wages
Higher taxes
Lower value of country currency
Monetary policy (demand-side)
Costs of inflation
Loss of purchasing power
Less saving
Less internationally competitive products
Less growth (investment)
Uncertainty
