Federal Reserve
What is the two most recent FED chairs?
Jerome Powell and Janet Yellen
What are the axis of the Aggregate Consumption Model?
Y-Axis: Price Level
X-Axis: GDP/Output
What is the Fisher Equation?
i = r + PI
When does the yield of a bond increase?
When the price of a bond decreases.
What is the Phillips Curve Equation?
PIt = PIe + ALPHA(U* - Ut)
Rising Inflation during a recession
What are nonrival/public goods?
Goods where it is not possible to exclude any individual from consuming the good.
What are the axis of a loanable funds?
Y-Axis: Real Interest Rate
X-Axis: Quantity of Loanable Funds
What is the Paradox of Thrift?
If everyone tries to save then total saving actually goes down.
What will increase if the FED tightens its monetary policy?
Unemployment
What type of policy should the FED pursue if they believe the economy is operating below full output/employment?
Accommodative/Expansionary
Why is the LRAS vertical?
It represents the maximum output that can be produced given factors of production. This lends to the belief that price changes will only cause a temporary change in total output.
What shape is the demand for loanable funds in the government model? Why?
Vertical Line because the government has to borrow no matter what the interest rate
When a company is more risky, what will its bond look like?
Lower Price, Higher Yield
When is a good time for workers to demand a higher wage?
When unemployment rate falls to around the level of NAIRU
What is the FED's dual mandate?
Maximum Employment and low, stable inflation
NAIRU
What does core inflation exclude?
Food and Energy
If savers become more relaxed and less risk averse, what will the impact be on loanable funds?
Corporate supply will increase while the government supply will decrease
What phenomenon explains why it is hard to get out of recessions quickly?
Sticky Wages
What does a higher alpha value imply about the central bank's credibility?
It implies a higher credibility because it means that PI(t) is determined more by expected inflation
A two year project to repair bridges is taken on. What will happen to the AD/AS model first? Then after two years?
Aggregate demand will shift right (increase in government spending). After two years, the aggregate supply will shift right because new infrastructure
How do you find the cyclical unemployment rate?
Unemployment Rate - Natural Unemployment Rate
Given a 2 year bond and a 4 year bond, how do you calculate what the yield on another 2 year bond that you buy after the first 2 year bond matures?
Set the 4 year bond rate exponented to the 4 equal to the 2 two year bonds' rate exponented to the 2. The second 2 year bond's rate is (1 + y/100)
If unemployment is high enough for long enough will inflation go to zero?
No, long periods of very high unemployment don't push price and wages below zero. There is a zero bound.