Basics
The basic problem of economics is _________ .
What is scarcity?
This law states that as price decreases, the quantity demanded increases.
What is the law of demand?
The types of unemployment are seasonal, structural, frictional, and ________ .
What is cyclical?
The shifters of Aggregate Supply.
Changes in Resource Prices, Changes in Government Action (not government spending), Changes in Productivity (Technology).
Fiscal policy is conducted by the President and ______ .
What is the Congress?
If the legal reserve requirement is 10 percent, the value of the simple deposit expansion multiplier is…
What is 10?
What would happen to the U.S dollar if Europeans prefer vacationing in the U.S? What would happen to the Euro?
U.S dollar appreciates and demand increases
The Euro depreciates and supply increases
The value of the next-best alternative is called the _____________ .
What is the opportunity cost?
The ____________ price is that price at which the quantity demanded equals the quantity supplied.
What is equilibrium?
An increase in inventories is counted as this part of GDP.
What is investment?
When actual output is greater than potential output, the economy has a(n) ___________ .
What is an inflationary gap (or a positive output gap)?
In conducting expansionary fiscal policy, the government either (increases/decreases) spending or (increases/decreases) taxes?
What is increases (spending), decreases (taxes)?
List 3 Tools of Monetary policy for a limit reserve banking system
Reserve Ratios, Discount Rates, Open Market Operations
When a foreign company buys business in a different country
What is Foreign Direct Investment?
If a country can produce a good or service at a lower opportunity cost, than it is said to have a ___________________ .
What is comparative advantage?
When the price is below its market-clearing level, there will be a ___________ .
What is shortage?
Nominal GDP divided by real GDP x 100 is the formula for this.
What is the GDP deflator?
The Aggregate Demand shifters.
What are changes in Consumer Spending (consumption), changes in Investment Spending, Changes in Government Spending, Changes in Net Exports (X-M)
Fiscal policy aims to shift the _________ curve.
Aggregate Demand
Assume the reserve requirement is .25. If the Central Bank sells $2 million dollars worth of bonds what will happen to the money supply (increase/decrease) and by how much?
The money supply will decrease by $8 billion.
(2 million X 1/.25 = 2 million X 4)
The financial flows recorded in the financial account are also part of this market
Loanable Funds Market
Government payment to producers designed to encourage them to produce more.
What is Subsidy?
The five main factors that shift the supply curve are a change in:
1. Technology, 2. the number of sellers, 3. government policies, 4. expectations, and _____________
What are input costs?
A high inflation rate imposes 3 types of costs: menu costs, unit-of-account costs, and this.
What is shoe-leather costs?
The formula for the spending multiplier.
What is 1/MPS or 1/1-MPC?
Rules governing taxes and transfers that reduce the size of fluctuations in the business cycle without specific action by Congress.
What are automatic stabilizers?
If the Central Bank increases the reserve requirement what happens to the money supply and interest rates?
Money supply decreases and interest rates increase.
A limit on the quantity of imports allowed into a country
Quota
The agreed upon conditions that would benefit both countries ______________ .
What is terms of trade?
A price _____________ is set above the equilibrium price and creates a persistent surplus.
What is floor?
Draw a PPC showing efficiency as A, opportunity cost as B, Unattainable as C, and Unemployment as D
A should be anywhere on the line. Opportunity cost shows B on the line to one side of a, Unattainable C should be above the curve, and D should be under the curve which is unemployment or inefficient.
Draw an AS/AD model with an inflationary gap and then show what would happen in the long run if the economy was self correcting (in other words no government intervention).
The AS/AD equilibrium should be to the right of the LRAS. IN the long run the AS should shift to the left to go back to the LRAS.
Because expansionary fiscal policy can cause an increase in the interest rate, it can result in a phenomenon known as ______________ , when private investment declines because of the government action.
What is crowding out?
To fight a recession and close the recessionary gap the Central Bank could increase the money supply. What effect would this have on AD and unemployment?
AD would INCREASE or shift right.
Unemployment would DECREASE (because real output increases)
Foreign aid sent to other countries and funds that immigrants send to family abroad.
Net Transfers