Flashcards
Macroeconomics Chapter 12
Cards in this deck (23)
- 1What is Aggregate Demand?It's a schedule or curve that shows the amount of nation's output (real GPD) that buyers collectively desire to purchase at each possible price level
- 2Behind Aggregate Demand (AD) is what?AE
AE = C + I + G + Xn - 3What is the relationship between the price level and real GDP for the Aggregate Demand Curve?Inverse Relationship
- 4What causes the Inverse Relationship?- Real Balance Effect (C)
- Interest Effect (I)
-Foreign Purchases Effect (Xn) - 5Why the downward slope?*The explanation centered on the income effect and the substitution effect.
-When price of individual product falls, the consumer's nominal income allows a larger purchase of product. (Income effect
-Price falls the consumer wants to buy more because it's less expensive than other goods. (Substitution effect) - 6Real-Balance Effect*A change in the price level
-A higher price level mean less consumption spending. - 7Interest-Rate Effect-By increasing the demand for money and consequently the interest rate, a higher price level reduces the amount of real output demanded.
- 8Foreign Purchase EffectThe rise in the price level reduces the quantity of U.S. goods demanded as net exports.
- 9Determinates of Aggregate Demand1) Change in consumer spending
-consumer wealth, consumer expectation, household barrowing, taxed
2) Change in investment spending
-interest rates, expected returns (technology, future business conditions, degree of excess capacity, business taxes)
3) Change in government spending
4) Change in net export spending
-national income abroad, exchange rates - 10What is Aggregate SupplyA schedule or curve showing the relationship between a nation's price level and the amount of real domestic output that firms in the economy produce.
- 11*Exam question* What will happen to productivity if wage is increased?Nothing: because money is not involved in productivity on "per-unit cost"
- 12Immediate-Short-Run Aggregate Supply Curve-Inputs are fixed, but output prices can vary
-Horizontal line (implies that the total amount of output supplied In the economy depends directly on the volume of spending that results at price level - 13Aggregate Supply in the Short RunAggregate supply slopes upward because with input prices fixed, changes in the price level will raise or lower real firm profits
- 14Per-unit cost equationPer-unit cost = total input cost/outputs
-ex: $500(wage) x 5(carpenter) = $2500
2500/100 = $25 - 15Aggregate Supply in the Long Run-Is vertical at the economy's full employment output (in the long run the economy will produce the full-employment output level no matter what the price level is)
- 16Determinates of Aggregate Supply1) Change in input prices
-domestic resource prices, prices of imported resources
2) Change in productivity
3) Change in legal-institutional environment
-business taxes and subsidies, government regulations - 17What is productivity?A measure of the relationship between a nation's level of real output and the amount of resources used to produce that output
- 18Productivity equationProductivity = Output/Inputs
-ex: 100tables/5carpenters = 20 t/c - 19What is equilibrium price level and equilibrium real output?-The intersection of the aggregate demand curve(AD) and the aggregate supply curve(AS)
-They jointly establish the price level and level of real GDP - 20Decreases in AD: Recession and Cyclical UnemploymentPrices are downwardly inflexible
-fear of price wars
-menu cost
-wage contracts
-efficiency wages
-minimum wage law - 21Prices go up but RARELY go down, why?Deflation occurs
- 22Decreases in AS: Cost-Push InflationAS line goes to the left : prices goes up and real domestic output goes down
- 23Increase in AS : Full Employment2 movements to the left : both price and real domestic output increase slightly
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- Flashcards on Macroeconomics Chapter 12, created by nkauyerlor on 14/04/2015.
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