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38 Cards in this Set
- Front
- Back
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Short-run economic fluctuations around the long-run trend of the economy.
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Business Cycles
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Short-run economic fluctuations around the long-run trend of the economy.
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Business Cycles
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A period of declining real incomes (declining real GDP) and rising unemployment.
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Recession
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What is a severe recession?
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Depression
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When was the Great Depression?
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1929-1933
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Fact 1 about Business Cycles.
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Business cycles (i.e. short-run economic fluctuations) are irregular and hard to predict.
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Fact 2 about business cycles.
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Most macroeconomic quantities fluctuate together.
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Fact 3 about business cycles.
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Some macroeconomic variables fluctuate more than others, e.g., investment fluctuations more than real GDP, and real GDP fluctuates more than consumption.
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Fact 3 about business cycles.
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Some macroeconomic variables fluctuate more than others, e.g., investment fluctuations more than real GDP, and real GDP fluctuates more than consumption.
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Fact 4 about business cycles.
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As output falls, unemployment rises.
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Business cycles are due to the fact that technological progress is sometimes faster and sometimes slower.
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Real Business Cycle Theory
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Business cycles are due to the fact that prices do not immediately adjust to changes in the economic environment.
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Keynesian Theory
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The curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level.
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The aggregate-demand curve.
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The curve that shows the quantity of goods and services that firms in the country choose to produce and sell at each price level.
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The aggregate-supply curve.
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Why does the aggregate-demand curve slope downward?
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A decrease in the price level increases the quantity of goods and services demand?
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What are the four components of total expenditure?
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GDP (Y) = Consumption + Investment + Government Purchases +Net Exports
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What does a fall in the price level increase?
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Consumption, investment and net exports for the following reasons.
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The price level and consumption
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The wealth effect.
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The price level and investment
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The interest-rate effect.
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The price level and net exports
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The exchange-rate effect.
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How do shifts in the aggregate-demand curve arise?
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Changes in consumption, investment, government purchases or net exports.
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When is the aggregate-supply curve vertical?
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The Long-Run
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When does the aggregate-supply curve slop upward?
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The Short-Run
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When is the production of goods and services in an economy determined by the supplies of labor, capital, and natural resources and by the available technology?
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The long run.
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The sticky-wage theory, the sticky-price theory, the misperception theory are __.
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reasons for why the aggregate-supply curve slopes upward in the short run
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To use monetary policy to offset those shifts and stabilize the economy.
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The idea of countercyclical monetary policy.
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What is the supply of money determined by?
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The Federal Reserve System and banks.
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What does the demand for money reflect?
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How much wealth people want to hold in the form of an asset that is a medium of exchange.
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What does the demand for money depend on?
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The price level (+), real GDP (+), the nominal interest rate (-), and the technology of the banking system.
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The demand for money depends __ on the nominal interest.
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negatively
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Why does the demand for money depend negatively on the nominal interest rate?
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When nominal interest rate rises, the opportunity cost of holding money increases.
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When an increase in the money supply lowers the equilibrium interest rate, which then causes an increase in investment, the aggregate demand curve shifts to the __.
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right
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When an increase in the price level increases the equilibrium interest rate, which then causes a fall in investment, there is movement along the aggregate demand curve to the __.
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left
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If the government can lower taxes, consumption __.
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rises
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Increasing government spending or lowering taxes.
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Expansionary Fiscal Policy
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Two additional effects of expansionary fiscal policy.
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The multiplier effect, and the crowding-out effect.
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The additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending.
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The Multiplier Effect
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The offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment.
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The Crowding-Out Effect
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