Whole Class
Hyperinflation
The model that shows a relationship between inflation and unemployment
The Phillips Curve
What does the Natural Rate of Unemployment consist of?
Frictional and Structural Unemployment
Define an inflationary gap according to the SRPC assuming we are at equilibrium with the LRPC
A movement along the SRPC up and to the left. Showing higher inflation and less unemployment
What shifts the LRPC?
An increase or decrease in the NRU only
When the public sector spends/loans money for itself to use, it creates increased demand for loanable funds in the private sector, what is this called?
Crowding Out
Assume the economy is in a recession currently. What would happen if congress takes the stance of actually achieving a plan for a balance budget, what would happen to the funding for automatic stabilizers?
It would be significantly less or be potentially eliminated
What could central banks do in order to prevent more inflation and keep interest rates stable?
Lower the money supply by selling bonds to commercial banks
When the SRPC and LRPC intersect, what is defined as equilibrium?
The expected inflation rate at the current natural rate of unemployment
If there is a movement down and to the left on the SRPC, what is happening to inflation and unemployment?
Inflation is decreasing while unemployment is increasing
Negative supply shocks, higher inflation expectations, and or lower productivity
In the long-run, what is the relationship between the unemployment rate and the inflation rate?
There is none. The economy will find it's way to the NRU, that is why the LRPC is vertical!
Give me the emblem or symbol that represents the expected inflation rate
πe
Whenever there is an increase in overall AD, what happens to the SRPC?
There is a movement along the SPRC curve?
The change in real GDP per capita over time is defined as
The growth rate
This is defined as the average times a dollar is spend and re-spend in a year
The velocity of money
Whenever there is an increase in overall SRAS, what happens to the SRPC?
There is an overall shift of the SRPC too
Why do economists support increasing the money supply when they know it's going to lead to higher resource prices and inflation?
Expansionary Monetary Policy can increase real output in the short-run, especially to start climbing out of a recessionary gap
When the government increases spending without raising taxes, what does this do to the countries balance sheet?
Creates a budget deficit
What happens to real interest rates, demand, and economic growth when there is a crowding out affect taking place?
Increased real interest rates
Increased Demand in the private sector
Less economic growth due to less capital stock
Assume we are at equilibrium with the SRPC and LRPC. Tell me what is the short-run effect when congress raises income taxes on citizens?
Assume the money supply in an economy is $20. During the year, people buy 40 products and each product costs $5. What is the velocity of money?
Velocity of money is 10
MV=PY
PY=(5)(40)=200 which is total spending
20V = 200
V = 200 / 20
V = 10
Assume we are starting at the optimal place with AD, AS, and LRAS model. When overall AD decreases, what does that mean for the SRPC/what it means for inflation and unemployment?
There is a movement down and to the right, causing inflation to go down and unemployment to increase.
If there is an overall increase of AD and SRAS, what does this mean for this economy and what happens to the PPC curve as well?
Why doesn't government spending always lead to economic growth?
The spending has to be related to increasing productivity and or technology.