Remember that?
Write the GDP Formula
What is C + I + G + (X - M)?
2 determinants of Aggregate Demand
Components of GDP
Taxes, Transfer Payments
Tax Rate is associated with which policy?
Fiscal
Who decides Fiscal Policy
Government
Who decides monetary policy?
Federal Reserve
(Central Bank)
3 types of unemployment
What are frictional, structural, cyclical?
2 requirements to be unemployed
Without a job and looking for a job
Steven takes out a loan with a nominal interest rate of 8%. The actual inflation rate is 3%.
(a) Calculate the real interest rate Steven pays.
5% (8% − 3%)
2 tools of fiscal policy
government spending & taxes?
This measure of money includes currency in circulation and checking account deposits.
What is the M1 money supply?
These groups are hurt by unanticipated inflation
What are savers, lenders, retirees?
3 Goals of Policy Makers
Full employment
economic growth
price stability
3 functions of money
Medium of exchange
Store of value
Standard of value?
Fiscal policy is used
When there is a Recessionary Gap or Inflationary Gap?
A person withdraws $1,000 from a checking account and holds it as physical cash. Assuming the cash is held by the public, what happens to M1 and M2?
What is no change in either M1 or M2?
How does inflation affect : 1)value of money 2) amount in circulation 3) prices
What is :
1)value decreases
2)amount increases
3)prices increase
2 determinants of Aggregate Supply
Production Cost
Productivity
relationship between national debt and deficit
What is a deficit will cause the national debt to increase?
Economy experiencing rapid inflation above 33% the government responds with ....
Contractionary fiscal policy
Fed has purchased a lot of bonds from banks recently, this indicates...
A recession
Describe the situation in an expansion and a contraction.
Expansion -- GDP, AD, AS up, UNE down, inflation Contraction -- GDP, AD, AS down, UNE up, deflation
The economy of Country A is currently experiencing a recessionary gap. The government takes no action, and wages and input prices are flexible in the long run.
Draw a correctly labeled AD–AS graph showing the current recessionary gap. / Show the effect of the markets adjustment on your graph and explain what happens.
Graph
The Consumer Price Index (CPI) in Country A was 120 in 2024 and 132 in 2025. /Calculate the inflation rate from 2024 to 2025./If a worker’s nominal wage increased by 6% during this period, did the worker’s real wage increase or decrease? Explain./
Calculate the worker’s approximate real wage growth.
(a) 10%
(b) Real wage decreased because inflation (10%) exceeded nominal wage growth (6%).
(c) −4% (6% − 10%)
Government spending increases. How does this affect unemployment and price levels
unemployment decreases and price levels increase?
Checkable deposits: $200,000, Reserves $30,000, Loans: 170,000, Required Reserves: 10%
Calculate the bank’s required reserves.Identify whether checkable deposits are an asset or a liability for the bank.
If the bank lends out all of its excess reserves, calculate the maximum amount of new loans it can make immediately.
(a) $20,000
(b) $10,000
(c) Liability
(d) $10,000