Test 1

Question 1

What affects aggregate demand?

Answer 1

Real wealth
Real interest rates
Expectations about economy (positive / negative)
Inflation 
Foreign wealth 
Domestic currency

Question 2

What affects SRAS?

Answer 2

Increase if…
Resources prices go down
Expected inflation goes down
Positive supply shocks (good weather)

Question 3

What affects LRAS?

Answer 3

Increase if…
Resource base increases
Technological advancements
Institutions allow for more efficient economic activity

Question 4

What is the formula for Real GDP?

Answer 4

Nominal GDP x GDP deflator base (100) / GDP deflator

Question 5

How to calculate inflation rate?

Answer 5

This years price index- last years price index/ last years price index x 100

Question 6

If wages goes up then what happens to SRAS?

Answer 6

SRAS goes down.

Question 7

If interest rates go up the. What happens to AD?

Answer 7

AD goes down.

Question 8

Define recession

Answer 8

Period of time where output is decreasing below our potential

Question 9

What does Y=C+I+G+NX mean?

Answer 9

C= consumption
I = investment
G= government spending
Nx= net exports

Question 10

What’s the equation for real interest?

Answer 10

Real interest = nominal interest - inflationary premium

Question 11

What is the definition of real interest rate?

Answer 11

The interest rate adjusted for expected inflation.

Question 12

Nominal interest rate define?

Answer 12

The unadjusted for inflation interest rate.

Question 13

Define captial inflow

Answer 13

When our real interest rates are higher than the world average then foreign investors will buy into our market

Question 14

Define capital outflow

Answer 14

When our real interest rates are lower than the world average than domestic savers invest in foreign markets

Question 15

What’re the 4 basic resources?

Answer 15

Labor
Capitol
Land
Entrepreneurship

Question 16

Equation for unemployment rate

Answer 16

People unemployed divided by the labor force

Question 17

Three types of unemployment

Answer 17

Frictional
Structural
Cyclical

Question 18

Frictional unemployment

Answer 18

Constant changes in the economy that prevent qualified unemployed workers from being matched up with job openings

Question 19

Structural unemployment

Answer 19

Workers are unable to fine a job because their skills do not match what is required for the job

Question 20

Cyclical unemployment

Answer 20

Indicator of recession. Due to decrease in labor demand

Question 21

If real interest rates decrease then…

Answer 21

AD will increase

Question 22

If people expect future inflation then…

Answer 22

AD demand increases

Question 23

When wages increase what happens to SRAS?

Answer 23

SRAS decreases

Question 24

What is the equation for participation rate?

Answer 24

Labor force divided by population

Question 25

What is the unemployment rate?

Answer 25

Unemployed divided by the labor force