Macroeconomic Foundations
What is the simplified model that looks at big sectors like total money and total income to help governments make decisions?
The Macroeconomic Model or IS-LM model
What primary factor determines the transaction demand for money?
The need to conduct daily purchases and payments.
Which policy Daly and Farley call a “blunt instrument” for fixing nature? Which policy do they say is better for protecting nature?
Monetary policy - blunt instrument, it only helps businesses make private market profits and it fails to fund public nature protection.
Fiscal Policy, it’s better because it lets the government directly spend money on nonmarket public goods like restoring the environment.
What is macro allocation and what are two kinds of goods it produces?
Macro-allocation is the allocation of resources among market and nonmarket goods and services.
In the IS-LM framework, the real sector balances savings and investments (S = I). What sector balances cash demand with the total money supply (L = M)?
The Monetary Sector
According to Keynes’s liquidity preference theory, what happens to the speculative demand for money when the interest rises?
It decreases
What is the before and after method used to compare the economy’s old interest rate and income with its new point after a policy change?
Comparative statistics
What kind of policy can directly fund public goods, including environmental restoration and infrastructure?
Fiscal policy
In the IS-LM framework, what is the sector of the macroeconomy that deals with the physical flow of production of goods and services, balancing savings, and investment (S = I)?
The Real Sector
Why is the IS curve drawn with a negative slope? (hint we talked about this in the last category)
Businesses will only borrow money to invest if they can make sufficient returns from the investment to pay off the loan plus interest and still have money left over for profit.
Imagine a town where every local business and bakery is operating at full capacity. If the government borrows money to build a project, driving up interest rates and making loans too expensive for the bakery to expand, what economic phenomenon has occurred?
Crowding out
What are some limitations of the IS-LM model
It ignores inflation and price changes; assumes central banks control the exact amount of money in circulation.
What point on an IS-LM graph determines the exact interest rate (r) and national income level (Y*) that balances both the real goods market and the money market?
General Macroeconomic Equilibrium
How does an increase in the market interest rate affect the price of existing bonds?
Bond prices fall.
While inflation means overall prices are increasing, what is the process that Daly and Farley say secretly helps wealthy lenders while hurting everyday borrowers?
Disinflation
Why might lowering interest rates fail to stimulate investment during a liquidity trap?
Lower interest rates may fail during a recession because businesses expect weak sales and therefore do not want to borrow or invest, even when credit is cheap.
What macroeconomic equation states that money supply multiplied by circulation velocity must equal the price level multiplied by physical output, showing why printing money when physical throughput is capped only causes price inflation?
MV = PQ (the Quantity Theory of Money)
What happens to the demand for money when overall national income increases?
Higher income increases spending, which boosts the transaction demand for money.
Rather than making the economy grow larger just to keep people working, what simple policy allows everyone to keep a job without consuming more of nature?
Shortening the workweek or job sharing
Why can an IS-LM equilibrium still be socially unequal or ecologically unsustainable?
IS-LM equilibrium only balances goods and money markets; it does not guarantee fair income distribution, full employment, or production within ecological limits.