unit 1
If Joe is a trader and in the same amount of time and efficiency is able to make 3 computers or 5 phones. What is the opportunity cost of 1 computer?
What is 5/3. what is given up is 5/3 of a phone for each computer. (divide by 3)
depicts the round-and-round path of money and goods in an economy. A graph.
What is circular flow?
Difference between short-run macroeconomic equilibrium and long-run macroeconomic equilibrium (in the AD-AS curve)
Short-run is where the SRAS and AD meet. Long run is when the AD, SRAS, and LRAS meet.
WHO CONDUCTS MONETARY POLICY? WHAT BRANCH OF GOVERNMENT ARE THEY?
The FED or central bank. Trick question its none they are independent! bonus: how many districts are there in the US for the Reserve Banks?
If a government decides to deficit spend what happens to the real interest rate and why.
Either supply decreases or demand increases in the LFM but either way the real interest rate rises causing less investment spending and decreasing economic growth. not investing for our future :(
Marked as inefficient if it lies within the curve of this graph?
What is the PPC? Why is it bowed and why would it expand outward?
Name 2 things not included in calculating GDP
used goods, intermediate goods, financial assets, transfer payments, non market transactions (illegal market) and goods/services made in other countries.
Why is there a difference between the SRAS and LRAS? foolish macro student: if they are both supply they should be the same!!!! explain why the student is wrong
SRAS accounts for the idea that certain inputs like wages are not flexible in the short-run. sticky wages.
What are the 3 tools in a limited reserve system the Fed can use?
Reserve requirements, open market operations, and the discount window. What's the equation for the money multiplier?
The presence of the LRPC shows that in the long run.... and that the line always rests at....
There is no trade off between unemployment and inflation and it always rests at the natural rate of unemployment. Shifts in supply do this to the SRPC while shifts in demand do this?
4 factors of production?
Land, Labor, Capital, and Entrepreneurship
What is the expenditure, value-added, and income approach.
What are the formulas for the spending/expenditure multiplier and the tax multiplier.
1/MPS and -MPC/MPS
describe how the monetary base and the money supply are proportional.
M0 x money multiplier = money supply. What backs the US currency to give it value?
US buys 30 million potatoes from Vanuatu and Vanuatu buys 200 million US government bonds. What is the impact on the BOP of the 2 countries.
Current account of Vanuatu increases while the current account of US decreases. Financial account increases for the US and decreases for Vanuatu.
If the price of a complement rises what happens to the basic demand curve of the other good?
It decreases. Complements are consumed together so if one is more expensive people will also buy less of the other good (cars and gas)
What is CPI and the basket of goods? what is one reason it may misrepresent inflation?
A measures a set number of goods and services in the average American family to compare prices over time to see inflation. Substitution bias means people may switch out for cheaper goods.
If there is a negative demand shock, how can fiscal policy fix it. Name both things congress could do.
Increase spending or lower taxes.
If an economy is in a recessionary output what should the FED do to the money supply.
What is the aggregate production function?
If two goods are substitutes in production and the price of one good rises what happens to the supply of the other.
It decreases. Substitutes in production is where the same inputs can make either good. So if the supplier gets more money from one they will obviously produce more of that one and thus less of the other.
Name the 3 types of unemployment, explain each, and state which are part of the natural rate of unemployment.
Frictional, structural, and cyclical. Frictional + structural = NRU
If there is a positive demand shock how does the economy self-adjust in the long run. plus, how does automatic stabilizers lessen the affect of the inflationary period.
Wages will rise in the long-run shifting SRAS left. Automatic stabilizers like SNAP or medicare will decrease the aid they provide and taxes will automatically rise through tax laws (based on percentage of income) thus lessening the impact of the demand growth.
In ample reserves what can be done to use contractionary monetary policy.
Raise the administered interest rates (more reserves) or raise interest on reserves.
The price level of the US has risen significantly in comparison to the amazing country of Kyrgyzstan. Which currency appreciates and which will depreciate. What is the effect on each countries' net exports following the change in exchange rate?
When the price level is higher in the US they will seek cheaper goods abroad demanding more goods from Kyrgyzstan thus demand increases for Kyrgyzstan appreciating the currency (net exports decrease). US currency is supplied more so depreciates (net exports will increase after).