U1: Basics
This curve/graph exemplifies the fundamental problem of economics (scarcity) by showing how tradeoffs are made between two goods.
What is the production possibilities curve?
This macroeconomic condition reflects a decrease in productivity where actual output (RGDP) levels fall below projected/potential output, wages fall over time, and PL goes down?
What is a recession/recessionary output gap?
On the AD-AS model, this represents actual productivity and has an "upward" slope to imply wages are "sticky" (fixed) in the short-run.
What is the SRAS?
This is what the Federal Reserve Bank of the US should do to the administered interest rates in an inflationary output gap to impact the fed funds/policy rate in an ample reserves framework.
What is raise rates?
This is how you draw the phillips curve in an inflationary output gap.
What is inflation on the y-axis, UE on the x-axis, the LRPC labeled, SRPC labeled, and the point to the L of the LRPC to reflect inflation & low UE?
When calculating comparative advantage, this acronym helps us in remembering the order we divide when using the "output" method.
What is "OOO" or "Other Output Over"?
This is the formula for calculating unemployment rate.
What is (# of UE/LF) x 100?
This type of output gap is reflected on our AD-AS model when the actual unemployment rate is less than the natural rate of unemployment.
What is an inflationary/expansionary output gap?
This open-market operation is what the Fed undertakes when trying to fight recession.
What is buy assets?
This should happen to the current account when the capital and financial account is in a deficit.
What is be in a surplus to finance the deficit in the CFA?
This condition exists when quantity supplied exceeds quantity demanded.
What is a surplus?
This is the rate of inflation from year 1 to year 2 when the GDP Deflator for year 2 is 120 & the GDP Deflator for year 1 is 100.
What is 20?
This component/shifter of AD also causes a change in LRAS/production possibilities/the natural rate of unemployment.
What is investment spending?
In the market for loanable funds, this happens to the equilibrium REAL interest rate as a result of governments borrowing the public's money to pay for spending packages.
What is increase?
Combining contractionary monetary policy and expansionary fiscal policy will have this impact on the interest rates. This will also happen to investment spending as a result. (2 part answer.)
What is increase interest rates and decrease investment?
This is what should happen to price to correct a shortage condition.
What is rise?
In Econlandia, Jacob lost his job due to mass layoffs in the tech sector. His boss told him his computer assembly line job was going by the wayside, as the company was going to utilize robots in his place. Jacob is said to be this type of unemployed person.
What is structurally unemployed?
This is how much the equilibrium change in RGDP would be with an MPC of .75 and a $200b increase in government spending.
What is $800 billion?
This occurs (concept) as a result of governments borrowing money from the public to pay for spending packages. (Your answer shall not include anything on interest rates.)
What is "crowding out"?
Assume a country's government raises taxes & the Fed simultaneously implements a contractionary monetary policy by way of selling bonds to decrease the money supply. In the short run, this will increase. (Hint: it's not interest rates.)
What is unemployment?
This is what happens to price & quantity in a market when there is a simultaneous increase in demand and supply. (2 parts; shift; think equilibrium)
What is price is indeterminate & q goes up?
In Inkopolis, they sell two consumer goods: ink and squids. In 2023, they sold 10 squids at $2 a piece and 20 bottles of ink at $2 a piece. In 2022, they sold 5 squids at $2 a piece and 10 bottles of ink at $2 a piece. This is the CPI for 2023.
What is 200?
The government is in this type of output gap where actual RGDP exceeds potential RGDP by $200 billion. This is how much they would need to increase taxes by in order to close that output gap when the MPC is .8. TWO ANSWERS REQUIRED.
What is inflationary? What is $50 billion?
This happens to long-run economic growth as a result of crowding out.
What is growth shrinks b/c investment spending decreases?
This happens to the money demand curve (on the money market graph) as a result of an increase in the price level or an increase in aggregate demand.
What is increase?