Introductory Concepts
The GDP is comprised of investment spending, government spending, net exports, and this
What is consumer spending?
The maximum amount of money a bank in the limited reserves framework can loan out is equal to this.
What is excess reserves?
The goal of contractionary fiscal policy is to close this.
What is an inflationary gap?
If the marginal propensity to consume is .7, this must be the marginal propensity to save.
What is aggregate demand?
If Sam the expert cassette maker is unemployed recently due to the advent of streaming technology, his unemployment type is this
What is structural unemployment?
The money multiplier is equal to the reciprocal of this
What is the reserve ratio?
What is government spending?
If exports are $5 billion and imports are $2 billion, net exports equals this.
What is $3 billion?
The relationship between inflation and unemployment can be illustrated on the short run of this.
This institution has a dual mandate of maintaining stable prices and promoting full employment
What is the Federal Reserve?
If a central banks wants to increase the money supply in a limited reserve framework it will engage in this open market operation.
What is "buy bonds"?
SNAP benefits and the progressive income tax system are examples of this
Automatic stabilizers
In an economy, Real GDP (base year = 1996) is $125 billion and the Nominal GDP is $150 billion. Calculate the GDP deflator.
What is $120 billion?
(Divide nominal GDP by the real GDP and multiply times 100)
This open market operation will increase interest rates on the money market graph.
What is sell bonds? (leftward shift of the money supply)
The natural rate of unemployment, found at the full employment level, is when there is none of this type of unemployment.
What is cyclical?
The discount rate and this make up administered rates in an ample reserve system.
What is "interest on reserves"?
This occurs when expansional fiscal policy increases the interest rate in the loanable funds market, which reduces private sector investment and consumption.
What is crowding out?
If the expected inflation rate is 6%, the nominal interest rate is 2%, and the actual inflation rate is 4%, what is the actual real interest rate?
-2%
actual real interest rate = nominal interest rate minus actual inflation rate. (2%-4% =-2%)
When households begin to save more, this curve shifts right in the loanable funds market.
What is the supply of loanable funds?
This index measures changes in the prices of goods and services produced in the United States, including those exported to other countries
GDP Deflator
The Federal Reserve moved to this framework after 2008.
What is the ample reserves framework?
When the US increases government spending, the supply of loanable funds will shift left, increasing this.
What is the real interest rate?
Assume that the reserve requirement is 20%. If a bank has no excess reserves, and $10,000 cash is deposited, the maximum amount by which this bank may increase its loans is?
What is $8,000
(.20*$10,000)
The "y-axis" of the reserve market graph.
What is the policy rate?