econ prelim #2 review sheet - ECON 102PRELIM #2 AD curve is...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON 102—P RELIM #2 AD curve is not a MD curve; it is not the sum of all MD curves in the economy Increase in MS will cause rightward shift in AD curve When an economy produces at its max level of output, the AS curve becomes vertical if there were no time lag between the input & output price changes the short-run AS curve would be almost entirely vertical AS curve to the left (bad) Late monsoon rains in agricultural nation AS curve to the right (good) Supply of better educated labor Investment in infrastructure Good weather One possible explanation for involuntary unemployment is that the wage rate doesn’t adjust immediately to changes in labor demand If inflationary expectations decrease , the results will be a decrease in the rate of inflation even though the unemployment rate may not have changed Factors to take into consideration when evaluation if debt is good or bad Relative size of the debt Proportion spent on consumption spending vs. capital spending Whether bonds issued were bought by foreigners vs. domestic rsidents NOT the absolute size of the debt Consumption expenditure [ex: paying gardeners to maintain the White House grounds] Investment expenditure [ex: construction of a library] During a recession there is high inflation FOMC should buy back securities Fed should NOT decrease the supply of the US Dollar Discount rate should be lowered Treasury should decrease taxes Bonds If bond prices decrease, bond yields would increase When interest rates rise, bond holders will suffer a loss in value of securities they own Bondholders do not have right to share in firm’s profit A bond is fixed income security and offered a fixed annual payment no matter which year it is purchased According to the life cycle theory of consumption , people tend to save the most during their working years
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/26/2009 for the course ECON 102 taught by Professor Kyle during the Spring '08 term at Cornell University (Engineering School).

Page1 / 3

econ prelim #2 review sheet - ECON 102PRELIM #2 AD curve is...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online