What can cause unemployment in the shortrun?
a. mismatch between j obs and skills
b. job search
demand or supply shocks
d. all of the above
e. only b and c
What can cause unemployment in the longrun?
a. mismatch between j obs and skills
Federal Reserve System
The FED is the US Central Bank, and supervises the financial system.
:XXXII. The FED
Structure: 12 regional banks supervised by a Board of Governors in
Washington, nominated to fixed terms
The effectiveness of fiscal policy also depends on 3 types of lags Fiscal Policy:
Long implementation, short impact on economy Monetary Policy: Shott
Implementation, long impact on economy
Three types of Lags
Recognition Lag: Time it takes b
Monetary Policy Monetary
Vault cash + ba nk reserves at the FED. The FED directly controls the Monetary Base
NOT the Monetary Supply b/c of the uncerta inty of the c parameter and whether
banks lend all, Less, or more than the excess of its reserves
Inflation- increase in avg. price level of goods & services over time
Deflation-decrease in avg. price level of goods & services over time Disinflationfalling inflation rate
Inflation rate = (Price 2 - Price 1 divi
WEEK 5 BIG QUESTIONS
l . WHAT ARE THE CONDITIONS FOR SR MACROECONOMIC EQUILIBRIUM?
WHY? In general, the quantity of real GDP demanded must equal the quantity of real GDP supplied in
order for short-run macroeconomic equilibrium to occur. The money wage ra
Which is true of the economy using money rather than barter?
a. doesn't require double coincidence of wants
b. increases division of labor, specialization, and economic efficiency
c. allows for the development of a financial sector to channel r
Which of the following describe the effect of an increase in government spending?
a. G up 7 T up 7 (Y-T) down 7 C down 7 D down 7p, y down
b. G up 7 Ms up "? i down 7 I up 7 D up 7 p, y down
c. C up 7 D up 7p,y up
d. G up 7 C up 7D
e. None of th
It's the Great Depression. Again. What should we do?
a. increase taxes, cut deficit, raise interest rates
b. increase government spending, increase money supply, to hell with the deficit
c. impose wage and price controls, and mandatory job progr
An increase in inventories (included in investment) is
a. good for economy
b. bad for economy
c. it depends
a. aggregate demand
b. intended or not
c. real or nominal
d. whether seasonally adjusted or not
Which is NOT a condition for equ
What impact does a change in Money Supply have in Keynsian/Classical model?
a. interest rates/output
b. interest rates/prices
c. prices/interest rates
d. output/interest rates, prices
What does the slope of aggregate supply curve matter?
Week 2 Assignment Q & A
1. What is Adam Smith's concept of the "Invisible Hand" about and why is it imp01tant?
The "Invisible Hand" is the concept that people interacting in a market in their own self interest will
tend to produce a socially efficient res
BIG QUESTIONS EDITED AND CHECKED 3/11
1. HOW DOES MONEY "MATTER "- I.E., HOW DO CHANGES IN THE MONEY SUPPLY
AFFECT THE ECONOMY IN THE SHORT-RUN? An increase in the supply of money causes a
decrease in its rice (the interest rateS. lower interest rateS rai
Speculative bubble - prices rise higher than fundamental worth; price of asset is higher than
what can be determined by economics
Consumption function is C = 10 + .75y and I = NX = 20. If G increases by 10, how much
will output increase by?
Which Growth Theory explains growth by exogenous technological change?
a. classical -Adam Smith
b. neo-c/ assical - Solow
c. new or endogenous growth theory - Roemer
d. all do
Which is NOT a reason economists generally favor free trade?
What determines the level of output?
a. aggregate supply and demand (or shifts)
b. supply and demand
c. savings and investment
d. amount of capital and labor
e. quantity of money
What determines real interest rates?
Which is the largest financial market, and one that operates 24 hours a day?
a. NYSE (NY stock exchange)
Why do exchange rates matter?
a. currency appreciation increases exports, reduces imports and aggregate de
Intro to Macroeconomics 103 Outline
I. Economics-1be study of how scarce resources are allocated (among competing uses)
Jl. Microeconomics-the study of individ ual ind ustries and behavior of ind ivid ual
BIG QUESTIONS Week 14
1. WHY DO ECONOMISTS GENERALLY FAVOR FREE TRADE? WHY RESTRICT TRADE?
Free trade is more efficient than placing restrictions on trade. It benefits all countries involved;
although some jobs are lost, new jobs are created. Trade i
BIG QUESTIONS WEEK 12
1. WHY AND HOW DO WE DISCOUNT FUTURE VALUES?
We discount future values becau se of interest rates; if one is to receive money today, its value
in the future is potentially higher becau se one could put that money into a savings accou
BIG QUESTIONS WEEK 10
l . WHY IS THE LR AGGREGATE SUPPLY CURVE VERTICAL, AND HOW CAN IT BE SO IF
THE SR AGGREGATE SUPPLY CURVE IS UPWARD SLOPING?
The LR aggregate supply curve is vertical because in the long run, the price level and the prices of the
BIG QUESTIONS WEEK 13
1. WHAT ARE THE COSTS AND BENEFITS OF ECONOMIC GROWTH?
The Costs of economic growth is the fact that in order to achieve economic growth, we must decrease
our CONSUMPTION AND THUS production of coNsuption goods and services. The oppO
Big Questions - Week 3
1) WHAT ARE THE DETERMINANTS OF AGGREGATE OUTPUT (REAL GDP)
AND THE OVERALL LEVEL OF PRICES IN THE SHORT-RUN? The determinants
of aggregate AGGREGATE DEMAND AND SUPPLY! CHANGES IN output CAN BE
CAUSED BY are natural shocks and techn
The use of gov't spending or taxes to change the level of total spending in an economy
Types of Fiscal Policy
Expamiona ry-Increase in gov't spending or reduction of taxes creating a bigger budget deficit.
How are long-run major exchange rates determined?
a. supply and demand for money
b. purchasing power parity
c. purchasing power pa rity
d. supply and demand for currency
What is wrong with a U.S. current account deficit?Capital account surplus?
How does fiscal policy work in the Keynesian model?
G "? D "? p, y
T "? (y-T) "? C "? D "? p, y
Ms "?i"? I "? D "? p, y
A and b
e. A, b, and c
How are interest rates determined and how do they matter?
b. Ms and Md"?i"? I "? D "? p,
Classical/Monetarist LR Model
Full employment Output in LR-Says Law
Vertical agg S curve at natural rate of unemployment=natural rate
level of output=potential gdp (all the same idea)
Fiscal Policy not needed (and probably bad since
Fiscal Policy and the Short-Run
32+ slides, policy
rap, fear the bust
In the News?
we have involved ourselves in a
colossal muddle, having blundered
in the control of a delicate machine,
the working of which we do not
Unemployment and Wages
Measuring unemployment and the unemployment
Causes of unemployment and Policies
Natural Rate of unemployment & NAIRU
Nominal and real wages and productivity
35; unemp quiz/ unemp