Math
In an open economy, net capital outflows (NCO) are equal to what?
Net exports.
Define neutrality of money.
Changes in the quantity of money have no effect on real quantities in the economy.
What constitutes the Fed?
12 regional banks, and the Federal Reserve Board in Washington D.C.
What are three possible effects of an increase in the money supply, and the associated equation?
A fall in the velocity of money, an increase in real GDP, or an increase in the price level, represented by the formula VxM=PxY
Name a reason why the U.S. entered a recession in Febuary of 2020.
As a result of the nationwide shutdowns that followed the spread of COVID-19 in the country.
What is the equation for income?
Y=C+I+G+NX
Define disount rate.
The interest rate that the federal reserve charges on loans it makes to banks.
What tool does the Fed use to adjust the money supply?
Open market operations.
In the long run, what does an increase in money supply lead to?
A proportional increase in price level.
What is the chief reason that people choose to hold money rather than other assets?
Because of the usefulness of money as a medium of exchanged.
What is the equation for income in a closed economy?
Y=C+I+G
Define potential output.
The quantity of goods and services that the economy can produce when using its resources at normal rates.
What are the roles of the twelve regional banks?
Overseeing commercial banks in their respective regions, and as a lender of last resort.
What are reasons for shifts in aggregate demand?
Anything that influences the consumption decisions of households or foreign residents, or leads firm to increase investment, changes in consumer sentiment, and changes in government spending and taxes.
What is the basic reason shocks to the economy translate into recessions and expansions.
The short-run inflexibility of prices.
What is the equation for national savings?
S=I=Y-C-G
Define federal funds rate.
The rate charged by banks when they lend reserves to other banks.
What is the basis of the Keynesian theory?
The causes of short-run fluctuations in the level of economic activity can be summarized in terms of the interaction between an aggregate demand curve and a short-run aggregate supply curve.
Why is the short-run aggregate supply curve upward sloping?
Because many firms do not immediately adjust prices in response to variations in demand, rather they fix a price then over time adjust prices in response to the gap between actual and anticipated sales.
What are the reasons for shifts in long-run aggregate supply?
Technological progress.
What is implied by the equation for savings that accounts for taxes?
Savings is equal to the sum of private saving Y-C-T and government savings T-G
What is the equation for the velocity of money?
V=PxY/M
What are three reasons aggregate demand is negatively related to the aggregate price level?
Wealth effect, interest rate effects, and foreign exchange effects.
What are the reasons for shifts in short-run aggregate supply?
Changes in expected price levels, and aggregate supply shocks.