Term
| On the money market diagram, the intersection of the money demand and money supply curve shows... |
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Definition
| the equilibrium real interest rate and the equilibrium quantity of money |
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Term
| What can cause a deflation? |
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Definition
| An increase in aggregate supply and/or a decrease in aggregate demand |
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Term
| What can cause a decrease in the real interest rate? |
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Definition
| Increase in money supply or a decrease in money demand |
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Term
| If prices adjust to equilibrium instantly... |
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Definition
| the aggregate supply curve is perfectly inelastic at the potential output level |
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Term
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Definition
| people make more purchases, so the demand for money rises |
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Term
| When money demand increases in the money market... |
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Definition
| the equilibrium real interest rate increases, which decreases investment spending in the goods market, decreasing aggregate demand, and reducing the price level and output |
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Term
| When aggregate demand falls in the goods market, so that equilibrium output is less than potential output... |
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Definition
| the price level will fall in the goods market, which reduced input costs, which increases aggregate supply, moving equilibrium output back towards potential output |
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Term
| When money demand decreases in the money market... |
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Definition
| The equilibrium real interest rate decreases, which increases investment spending in the goods market, increasing aggregate demand and raising the price level and output |
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Term
| An increase in real GDP that happens during expansion would happen by... |
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Definition
| an increase in demand and/or an increase in supply |
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Term
| When the economy is at or near potential output, real GDP growth is limited by... |
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Definition
| The growth in potential output |
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Term
| Keeping wealth in cash or checking means people lose interest they could earn by investing in assets. The advantage of keeping wealth in cash or checking is.... |
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Definition
|
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Term
| decreases in incomes or prices causes... |
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Definition
|
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Term
| the money multiplier shows... |
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Definition
| how much added money is created by the banking system when the monetary base increases |
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Term
| A century ago, when agriculture was a huge part of the U.S. economy, financial markets were vulnerable to panics during the harvest season because |
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Definition
| the supply of money was lower. Money was needed for harvest-time transactions, so banks held more reserves to handle withdrawals. |
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Term
| Governments can pay for the costs of wars (or anything else) by... |
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Definition
| raising taxes, borrowing and printing money |
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Term
| The Federal Reserve was created to be a "lender of last resort" in order to... |
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Definition
| stop bank runs by lending banks to money to pay out to depositors |
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Term
| To use the discount rate to reduce bank interest rates, the Federal Reserve should... |
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Definition
| decrease the interest rate at which banks borrow from the Fed |
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Term
| To use open market operations to decrease the money supply, the Federal Reserve would... |
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Definition
| sell treasury bonds to banks |
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Term
| For 2 years after WW1, the US Treasury required the Federal Reserve to hold interest rates low, to reduce the cost of paying interest on war bonds. As a result... |
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Definition
| the money supply continued to increase, and inflation remained high |
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Term
| During and after WW1, the Federal Reserve followed a policy which led to high inflation. What describes this policy? |
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Definition
| To keep interest rates low with rising money demand, the Fed had to increase the money supply |
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Term
| In what decade was the average CPI inflation rate the highest? |
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Definition
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Term
| Study the CPI inflation rates in each decade from the 1960s-1990s. What is true of them? |
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Definition
| Inflation rates were low but rising during the 1960s, the highest throughout the 1970s, falling then rising during the 1980s and pretty low in the 1990s |
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Term
| Consider the goods market in our macroeconomic model. During the years after 1955, we'll measure "P" on the vertical axis with the inflation rate. Increases in P mean the inflation rate has increased; decreases in P mean the inflation rate has decreased. In the first spreadsheet assignment, consider the changes in the CPI inflation rate from 2015 to 2017. Which two goods market shifts could cause this change? |
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Definition
| An increase in aggregate demand and a decrease in aggregate supply |
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Term
| Consider the goods market in our macroeconomic model. Which two changes could cause and increase in inflation, which is a rise in the price level or “P” on the vertical axis? |
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Definition
| A rise in oil prices and an increase in consumer spending |
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Term
| Consider second shift #3, where changes in the goods market affect the money market. What change in the money market would most likely result from the change in the inflation rate that occurred from 2015 to 2017? |
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Definition
| An increase in money demand |
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Term
| T/F: In some recession years, the unemployment rate decreased from the year before? |
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Definition
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Term
| What was the change in the unemployment rate from 2016 to 2017? |
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Definition
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Term
| What is the correlation coefficient between the real GDP growth rate and the change in the unemployment rate for the years 1961-2017? |
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Definition
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Term
| T/F: Real GDP unemployment rate hypothesis. The correlation coefficient between the real GDP growth rate and the change in the unemployment rate provides evidence that unemployment falls as output grows, and unemployment rises as output falls. |
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Definition
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Term
| What is the correlation coefficient between the CPI core inflation rate and the BAA-AAA interest rate spread for the years 1961-2017? |
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Definition
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Term
| T/F: Second shift #3 hypothesis. The correlation coefficient between the CPI core inflation rate and the BAA-AAA interest rate spread provides evidence that higher inflation rates correspond to larger interest rate spreads. |
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Definition
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Term
| What is the correlation coefficient between the BAA-AAA corporate bond interest rate spread and the real GDP growth rate for the years 1961-2017? |
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Definition
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Term
| T/F: econd shift #2 hypothesis. The correlation coefficient between the BAA-AAA corporate bond interest rate spread and the real GDP growth rate provides evidence that pessimism in financial markets causes reductions in the production goods and services. |
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Definition
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Term
| What is the correlation coefficient between the unemployment rate and the CPI core inflation rate for the years 1961-2017? |
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Definition
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Term
| T/F: Second shift #1 hypothesis. The correlation coefficient between the unemployment rate and the CPI core inflation rate provides evidence that high unemployment reduces the price level, and low unemployment increases the price level. |
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Definition
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Term
| What was the change in the core inflation rate from 2016 to 2017? |
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Definition
|
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Term
| What is the correlation coefficient between the unemployment rate and the change in the CPI coreinflation rate for the years 1962-2017? |
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Definition
|
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Term
| T/F: Second shift #1 hypothesis. The correlation coefficient between the unemployment rate and the change in the CPI core inflation rate provides evidence that output below potential reduces inflation, while output above potential increases inflation. |
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Definition
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Term
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Definition
| Goods Market: when output differs from potential, aggregate supply shifts |
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Term
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Definition
| Money market to Goods Market: changes in real interest rate shift aggregate demand |
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Term
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Definition
| Goods market to Money market: changes in price level and output shift money demand |
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