Chapter 9 - Chapter 9 Focus: What is the circular flow of...

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Chapter 9 Focus: What is the circular flow of income? What are the major markets that coordinate macroeconomic activities? Why is the aggregate demand for goods and services inversely related to the price level? Why is an increase in the price level likely to expand output in the short run, but not in the long run? What determines the equilibrium level of GDP of an economy? When equilibrium is present, how will the actual rate of unemployment compare with the natural rate? What is the difference between the real interest rate and the money interest rate? Does inflation help borrowers relative to lenders? If equilibrium is present in the loanable funds and foreign exchange markets, how will this influence the leakages from and injections into the circular flow of income? Fiscal Policy - The use of government taxation and expenditure policies for the purpose of achieving macroeconomic goals. Monetary Policy - The deliberate control of the money supply, and, in some cases, credit conditions, for the purpose of achieving macroeconomic goals. Money Supply - the supply of currency, checking account funds, and traveler’s checks. These items are counted as money because they are used as the means of payment for purchases. Resource Market - A highly aggregated market encompassing all resources (labor, physical capital, land, entrepreneurship) contributing to the production of current output. The labor market is the largest component of this market. Goods and Services Market - A highly aggregated market encompassing the flow of all final-user goods and services. The market counts all items that enter into GDP. Thus, real output in this market is equal to real GDP. Loanable Funds Market
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This note was uploaded on 04/08/2008 for the course ECO 203 taught by Professor Pongracic during the Spring '08 term at Hillsdale.

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Chapter 9 - Chapter 9 Focus: What is the circular flow of...

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