More Micro/Macro Cards

Question 1

What is the law of demand?

Answer 1

As price decreases, quantity demanded increases

Question 2

What is the law of supply?

Answer 2

As price increases, quantity supplied increases

Question 3

What causes movement along the demand curve?

Answer 3

A change in the price of the good itself

Question 4

What shifts the demand curve?

Answer 4

PINTE: Price of related goods, Income, Number of buyers, Tastes, Expectations

Question 5

What is the price elasticity of demand?

Answer 5

It measures how much quantity demanded responds to a price change

Question 6

What is cross-price elasticity?

Answer 6

Measures how quantity demanded of one good responds to the price of another

Question 7

Cross-price elasticity: substitutes or complements?

Answer 7

Positive = substitutes; Negative = complements

Question 8

What is the income elasticity of demand?

Answer 8

Measures how quantity demanded changes with income

Question 9

What is the equilibrium point?

Answer 9

Where quantity demanded equals quantity supplied

Question 10

What happens at a surplus?

Answer 10

Quantity supplied > quantity demanded; price is above equilibrium

Question 11

What happens at a shortage?

Answer 11

Quantity demanded > quantity supplied; price is below equilibrium

Question 12

What is fiscal policy?

Answer 12

Government decisions on spending and taxation

Question 13

What is monetary policy?

Answer 13

The Fed’s actions to influence the money supply and interest rates

Question 14

What are open market operations?

Answer 14

The Fed buys/sells bonds to change the money supply

Question 15

Buying bonds does what to the money supply?

Answer 15

Increases it

Question 16

Selling bonds does what to the money supply?

Answer 16

Decreases it

Question 17

What is the discount rate?

Answer 17

Interest rate the Fed charges banks to borrow

Question 18

What is the multiplier effect?

Answer 18

Initial spending leads to increased consumption and more total demand

Question 19

What is the crowding-out effect?

Answer 19

Gov borrowing raises interest rates and reduces private investment

Question 20

What shifts aggregate demand?

Answer 20

Changes in C, I, G, NX (spending components)

Question 21

What shifts short-run aggregate supply?

Answer 21

Changes in input prices, productivity, expectations, regulations

Question 22

FOMC stands for what?

Answer 22

Federal Open Market Committee

Question 23

What happens when reserve requirements increase?

Answer 23

Less lending, smaller money supply

Question 24

What increases the money supply?

Answer 24

Lower discount rate, buying bonds, lower reserve requirements

Question 25

What does the market demand curve represent?

Answer 25

The sum of the quantity demanded by all buyers at each price of the good

Question 26

What is the discount rate?

Answer 26

The interest rate the Fed charges commercial banks to borrow money

Question 27

How do reserve requirements affect money supply?

Answer 27

A decrease increases money supply; an increase decreases it

Question 28

What are open market operations?

Answer 28

The Fed buying/selling bonds to influence the money supply

Question 29

What is the multiplier effect?

Answer 29

One dollar of government spending leads to more than one dollar of total increase in GDP

Question 30

What is income elasticity of demand (YED)?

Answer 30

Measures how quantity demanded changes when income changes

Question 31

What is a positive YED?

Answer 31

Normal goods — as income increases, demand increases

Question 32

What is a negative YED?

Answer 32

Inferior goods — as income increases, demand decreases

Question 33

What is cross-price elasticity of demand?

Answer 33

Measures how the quantity demanded of one good changes in response to a price change in another good

Question 34

What does a positive CPED mean?

Answer 34

Goods are substitutes (e.g., Coke and Pepsi)

Question 35

What does a negative CPED mean?

Answer 35

Goods are complements (e.g., hot dogs and hot dog buns)

Question 36

What happens during an open market sale?

Answer 36

The Fed sells bonds, pulling money out of circulation

Question 37

What is a luxury good?

Answer 37

Tends to be elastic — people buy more when income rises

Question 38

How do you identify complements vs substitutes with CPED?

Answer 38

Complements = negative CPED; Substitutes = positive CPED

Question 39

What does a flatter demand curve mean?

Answer 39

More elastic — buyers respond more to price changes

Question 40

What does a steeper demand curve mean?

Answer 40

More inelastic — buyers respond less to price changes

Question 41

What is price elasticity of demand?

Answer 41

How much quantity demanded changes when price changes

Question 42

What is price elasticity of supply?

Answer 42

How much quantity supplied changes when price changes

Question 43

What affects price elasticity of supply?

Answer 43

Time — producers are more flexible in the long run

Question 44

What happens when there is excess supply of money?

Answer 44

Interest rates fall, investment increases

Question 45

What causes a rightward shift in aggregate demand?

Answer 45

Increased spending from consumers, firms, government, or foreigners

Question 46

What does aggregate demand reflect?

Answer 46

The relationship between the price level and real GDP demanded

Question 47

What happens if demand increases?

Answer 47

Equilibrium price and quantity both increase

Question 48

How does the Fed raise interest rates?

Answer 48

By selling bonds to decrease the money supply

Question 49

What is the definition of fiscal policy?

Answer 49

Government decisions on spending and taxation to influence the economy