Unit 1
This is the value of the next best alternative when a choice is made.
What is opportunity cost?
This measure shows the total value of all goods and services produced in a country in a given year.
What is Gross Domestic Product (GDP)?
These are the main reasons the aggregate demand curve might shift.
What is a shift in aggregate demand?
This includes all currency and deposits available to households and businesses.
What is the money supply?
This type of government policy uses spending and taxes to influence the economy.
What is fiscal policy?
This term refers to the ability to produce a good at a lower opportunity cost than someone else.
What is comparative advantage?
This question asks whether buying used goods or intermediate goods counts toward GDP.
What is included vs. excluded in GDP?
This asks you to explain the difference between the short-run and long-run aggregate supply curves.
What is the difference between short-run and long-run AS?
This formula determines how much total money the banking system can create from a single deposit.
What is the money multiplier?
This kind of fiscal policy reduces inflation by decreasing aggregate demand.
What is a contractionary fiscal policy?
This graph shows trade-offs between two goods and the concept of efficiency.
What is the production possibilities curve (PPC)?
This is the percentage of the labor force that is jobless and actively seeking work.
What is the unemployment rate?
This inflation occurs when increased demand pulls the overall price level upward.
What is demand-pull inflation?
These are the costs of borrowing money, and they affect investment decisions by firms.
What are interest rates and their effect on investment?
This policy tool of the central bank can either curb inflation or boost employment, depending on how it’s used.
What is the effect of monetary policy on inflation?
This is the term for producing more of a good than someone else using fewer resources, and its counterpart, based on lower opportunity cost.
What is the difference between absolute and comparative advantage, with an example?
This is a measure of inflation based on a market basket of consumer goods, and here's how you calculate it.
What is the Consumer Price Index (CPI) and how is it calculated?
This type of shock causes prices to rise while output falls, shifting the AS curve left.
What is a negative supply shock on the AD/AS model?
This question asks you to describe how fractional reserve banking expands the money supply.
What is the process by which banks create money?
This is when the Fed buys or sells bonds to increase or decrease the money supply.
What is an open market operation by the Fed?
This problem involves calculating whether two nations should trade based on opportunity costs.
What is a terms of trade problem and how is it solved?
This calculation adjusts GDP for inflation using the formula: (Nominal GDP ÷ Price Index) × 100.
What is the formula for real GDP using nominal GDP and a price
This question asks you to draw and label a macro model that shows the economy producing beyond full employment.
What is the full macro model with an inflationary gap?
This graph shows the equilibrium interest rate and what happens when people want to hold more cash.
What is the money market graph, and what happens when money demand increases?
This is a comparison of how well fiscal policy vs. monetary policy works in stabilizing the economy.
What are the strengths and weaknesses of fiscal vs. monetary policy?