Download Macro Semester Topics

Semester Topics: Guide to Basics
Macro Economics
Introductory Materials and Production Possibilities
1. For an economist, __________ is scarce.
2. All decisions require an _____________ ______.
3. Most problems of predicting changes will require c_______ p________ assumptions.
4. The most common labels on the PPC are Y Axis = _________, X Axis = _________
5. Know the significance of points inside the Frontier, on the Frontier, and outside the Frontier. They are equal to:
_______________, ___________, _________.
6. Understand that moving the Frontier requires more _______ __ _______.
Supply and Demand Basics and Currency Exchanges
7. When product prices are changed first, move points on the ______.
This is known as a __________ Change
and this will create a surplus or a shortage.
8. When government steps in with artificial price floors and ceilings, they are trying to help suppliers with
_________ and consumers with __________.
9. Artificial floors always create greater ______________.
10. Artificial ceilings always create greater ______________.
11. When any other product factor changes first, move either the __ or __ _______. This is known as a “Supply or
Demand” Change.
12. This will create a new ___ and ___ for that market.
13. When the price of a good increases, a substitute’s demand will __________.
14. When the price of a good increases, a complement’s demand will _________.
15. Perfectly inelastic supply lines are __________________.
16. Demand for currencies will flow to the __________ economy.
17. If D changes for one currency, __ must change for the other currency.
18. The two currency graphs will move in ___ ________ direction.
19. One currency will always appreciate, the other will _________.
20. Appreciation of a currency hurts _________, depreciation helps make them cheaper.
Goods and Government
21. Durable goods and non-durable goods are based on length of ________ _____.
22. Transfer payments are from government to _________.
23. Subsidies are payments from government to _________.
GDP Accounting
24. The expenditure approach of __ + __ + __ + __ must be memorized.
25. The expenditure approach is equal to ____.
26. The expenditure approach is also equal to _______________.
27. __ is the most significant in the US, __ has no savings leak, __ is affected by interest rates (in an inverse way for
the domestic market).
28. For GDP accounting, intermediate goods are ___ ________.
29. Unsold inventory is counted as __ at year’s end.
30. Used goods do ___ count in the year they re-sell.
31. Goods and _________ both count as Consumption.
32. GDP to NDP accounts for Depreciation of Capital or Consumption of Fixed Capital (CFC). This gives the
_____ measure of growth.
33. Nominal minus Inflation = ____.
Business Cycles
34. The up-sloping Secular Trend is a Classical Theory of gradual improvement of lifestyles over time. It can be
connected to_____ Law.
35. The minimum time span for a change in the cycle is ____ _________.
36. The cycle is measured from ________ to _________.
37. _______ and _______ can only be recognized after they have occurred.
38. The average cycle for the US has been about __ _______ (200 years of data).
39. Recessions have historically lasted about ___ months (20 century and beyond).
40. It will be assumed that Recession will have excess ______________.
41. It will be assumed that Expansions will have some excess _____________.
Employment and Unemployment
42. Part time workers are ___________ as “employed”.
43. Discouraged workers are ____ ___________ as unemployed.
44. “Full Employment Unemployment” (FE) is the ________ ____ __ __________ for a country.
CPI, GDP Deflators, Inflation
45. An Index Year is always made equal to _______.
Real change of values over time can always be calculated with the formula: Later Year – Earlier Year/Earlier Year. This = the Rate
of Change. The Rate x 100 = Inflation %.
46. CPI measures monthly purchases by _______, the GDP deflator looks at the _____ ___________.
47. G spending changes are assumed to be more important that private C changes because C changes always have a
__________ leak.
48. Demand Pull inflation is caused by excessive ____________________. It can be manipulated by governmental
policies.
49. Cost Push inflation is a _______ ___ _____________ and often can’t be corrected.
50. Stagflation is the presence of rising unemployment and rising inflation, and can be created by ___________
______________.
Spending Multipliers
Marginal Propensity to Consume or Marginal Propensity to Save are results of new money being given to citizens, or being taken away
from citizens.
51. The MPC + MPS must always = ___.
The Spending Multiplier Formula is therefore a guess on how many times new income will be spent by a series of consumers. The
formula will be: 1/1-MPC or 1/MPS.
Investment Demand
52. On the domestic market, interest rates (i) are a ____ of borrowing and have an inverse effect on the willingness
to create Ig.
Aggregate Analysis (AD and SRAS) (AD/AS)
53. Any change that can be connected to C + Ig + G + Xn will be a change in ____ first.
54. Any change that can be connected to input costs, resource availability, wage rates, or worker productivity will
change the ________________
Schools of Economics
55. Classical economists believe that competition is ______ and the invisible hand will create better goods, cheaper
goods, and more competition.
56. Classical economists believe in ________ prices and wages, long run balance near Full Employment GDP (Say’s
Law).
57. Classical economists want government to promote competition, stop monopolies and cheating, stop actions that
limit _____________ prices and wages.
58. Neo-classical economists like the idea of tax______ for trickle down growth.
59. Neo-classical economists also like the idea of tax ______ to starve government’s ability to interfere with
competition.
60. Keynesians believe that competition is ________ and must be corrected in the Short Run.
61. Keynesians believe that Fiscal Policies will focus on ______ and _________.
62. Keynesians believe that wages are sticky and prices are stuck by the ________ effect.
63. Monetary policy advocates don’t think Keynesians can _______ policy correctly.
64. Monetary policy advocates don’t think Keynesians can fight ___________.
65. Monetary policy advocates support fine tuning with ____________ rates.
Countercyclical Policies: Fiscal and Monetary
66. Always connect ______ Policies to Keynes and ______________.
67. Congress can change taxes and government spending and target ___ and ___ of AD. Use the terms
“expansionary and contractionary” policies
68. When in a recession, assume that tax _____ and spending __________will create ________ and that crowding
out can occur.
69. Always connect Monetary Policies to the ______________________________
70. When the Fed buys bonds it is “______ Money” policy (expansionary). Remember BB = BB (Buy Bonds = Big
Bucks).
71. When the Fed sells bonds it is “______ Money” policy (contractionary).
Remember SB = SB (Sell Bonds = Small Bucks).
The OMC (FOMC) is always connected to the bond markets and transactions with the public.
72. Bond “prices” and interest rates are____________ in values.
73. All Fed policies target the Money Supply, interest rates, Ig, ______.
Banks Creating Money
74. The Money Multiplier formula is __.
75. Demand Deposits (DD) are a bank __________ and must equal bank assets.
76. Required Reserves (RR) are a bank ________ and are set by the rr.
Excess Reserves (ER) are the monies banks can lend from each DD.
77. RR and ER must _______ DD.
78. ER x the Loan Multiplier will equal to new loans for the economy which are assumed to be new ___________
____________.
If someone is using cash to create a new DD, then the ER x Loan Multiplier will equal New Money Supply.
If the Fed is buying bonds that become DDs, then the ER x Loan Multiplier plus the original bond amount will equal New Money
Supply.
Phillips Curves
79. The relationship between inflation and unemployment is assumed to be _________.
80. Combining the inflation % and the unemployment % is known as the ________ Index.
81. The changes in the business cycle due to changes in AD will move points ________ the Short Run Phillips
Curve (SRPC).
82. Changes in SRAS will move the _______ SRPC. The two curves will move in ________ directions.
83. When the SRPC moves outward, it will usually be connected to _____________.
84. The Long Run Phillips Curve (LRPC) is equated to the _________ _______ __ ______________ for a
country.
It is assumed by Classical Economists that the NRU is greater for countries that give the unemployed more help, or time to find a new
job.
Monetarism (Not the Same as Monetary Policy by the Fed!)
85. The Equation of Exchange is ____ = ____.
86. Monetarists assume that velocity is ___________.
87. The general assumption of this thinking is that most inflation can be controlled by limiting the growth of the
___________ ______________.
International Comparative Advantages
88. If two countries have similar resources, the country that can produce the most has the _______________
Advantage.
89. The country with the lowest opportunity cost has ______________ Advantage.
Countries will trade to gain beyond their own domestic opportunity cost.
90. Both countries must gain for trade to occur; and both will _______ if they trade their own comparative
advantage products.
International Balance of Payments Accounting
91. BOP Assets (Credits) are ____________ for a country’s money and are “inflows”.
92. BOP Liabilities (Debits) are _____________ of a country’s money and are “outflows”.
93. ______________ Accounts are the transfer of money/wealth that is immediate.
94. __________________________Accounts are the transfer of money/wealth that occur between countries, but
hope to create future revenue.
95. Reserves are used by countries if Current Accounts do not __________ Capital/Financial Accounts.
1
1/rr
6 months
6 years
14
100
Absolute
AD
AD
AD
along
asset
better (or stronger)
businesses
C, G
C, G
C, G, Ig
C + Ig + G + Xn
Capital/Financial
Capital Goods,
Consumer
Goods
ceteris paribus
Comparative
consumers, entire
economy
consumption
cost
counted
Current
cuts
cuts
cuts, increases, deficits
demand
Demand Deposits
decrease
depreciate
Easy
EP and EQ
entire, opposite
equal
equal
everything
exports
Factors of Production
FED (Federal Reserve)
Fiscal, Congress
flawed
flexible
flexible
floors, ceilings
gain
GDP
good
Ig
increase
individuals
inflation
inflation
interest
inverse
inverse
inefficient, efficient, not
available yet
liability
line, quantity
loss of supply
Misery
money supply
MV = PQ
Natural Rate of
Unemployment
Natural Rate of
Unemployment
not
not counted
not counted
opportunity cost
peaks, troughs
product life
Ratchet
real
real
S
S or D lines
savings
Say’s
services
shortages
SRAS
stable
Stagflation
supply
Supply Shocks
surpluses
the same
Tight
time
trough, trough
unemployment
vertical
Semester Topics: Guide to Basics (KEY)
Macro Economics
Introductory Materials and Production Possibilities
1. For an economist, everything is scarce.
2. All decisions require an opportunity cost.
3. Most problems of predicting changes will require ceteris paribus assumptions.
4. The most common labels on the PPC are Y Axis = Capital Goods, X Axis = Consumer Goods
5. Students must know the significance of points inside the Frontier, on the Frontier, and outside the Frontier.
These are equal to: inefficient, efficient, not available.
6. Students must understand that moving the Frontier requires more Factors of Production
Supply and Demand Basics and Currency Exchanges
7. When product prices are changed first, move points on the line. This is known as a “Quantity” Change and this
will create a surplus or a shortage.
8. When government steps in with artificial price floors and ceilings, they are trying to help suppliers with floors and
consumers with ceilings.
9. Artificial floors always create greater surpluses.
10. Artificial ceilings always create greater shortages.
11. When any other product factor changes first, move either the S or the D lines. This is known as a “Supply or
Demand” Change.
12. This will create a new EP and EQ for that market.
13. When the price of a good increases, a substitute’s demand will increase.
14. When the price of a good increases, a complement’s demand will decrease.
15. Perfectly inelastic supply lines are vertical
16. Demand for currencies will flow to the “better” economy.
17. If D changes for one currency, S must change for the other currency.
18. The two currency graphs will move in the same direction.
19. One currency will always appreciate, the other will depreciate.
20. Appreciation of a currency hurts exports, depreciation helps make them cheaper.
Goods and Government
21. Durable goods and non-durable goods are based on length of product life.
22. Transfer payments are from government to individuals.
23. Subsidies are payments from government to businesses.
GDP Accounting
24. The expenditure approach of C + Ig + G + Xn must be memorized.
25. The expenditure approach is equal to AD.
26. The expenditure approach is also equal to GDP.
27. C is the most significant in the US, G has no savings leak, Ig is affected by interest rates (in an inverse way for
the domestic market).
28. For GDP accounting, intermediate goods are not counted.
29. Unsold inventory is counted as Ig at year’s end.
30. Used goods do not count in the year the re-sell.
31. Goods and services are both counted as Consumption.
32. GDP to NDP accounts for Depreciation of Capital or Consumption of Fixed Capital (CFC). This gives the
real measure of growth.
33. Nominal minus Inflation = Real
Business Cycles
34. The up-sloping Secular Trend is a Classical Theory of gradual improvement of lifestyles over time. It can be
connected to Say’s Law.
35. The minimum time span for a change in the cycle is 6 months (2 “quarters”).
36. The cycle is measured from trough to trough.
37. Peaks and troughs can only be recognized after they have occurred.
38. The average cycle for the US has been about 6 years (200 years of data).
39. Recessions have historically lasted about 14 months (20 century and beyond).
40. It will be assumed that Recession will have excess unemployment.
41. It will be assumed that Expansions will have some excess inflation.
Employment and Unemployment
42. Part time workers are counted as “employed”.
43. Discouraged workers are not counted as unemployed.
44. “Full Employment Unemployment” (FE) is the Natural Rate of Unemployment (NRU) for a country.
CPI, GDP Deflators, Inflation
45. An Index Year is always made equal to 100.
Real change of values over time can always be calculated with the formula: Later Year – Earlier Year/Earlier Year. This = Rate of
Change. The Rate x 100 = Inflation %.
46. CPI measures monthly purchases by consumers, the GDP deflator looks at all the economy.
47. G spending changes are assumed to be more important that private C changes because C changes always have a
savings leak.
48. Demand Pull inflation is caused by excessive consumption. It can be manipulated by governmental policies.
49. Cost Push inflation is a loss of Supply and often can’t be corrected.
50. Stagflation is the presence of rising unemployment and rising inflation, and can be created by Supply Shocks.
Spending Multipliers
Marginal Propensity to Consume or Marginal Propensity to Save are results of new money being given to citizens, or being taken away
from citizens.
51. The MPC + MPS must always = 1.
The Spending Multiplier Formula is therefore a guess on how many times new income will be spent by a series of consumers. The
formula will be: 1/1-MPC or 1/MPS.
Investment Demand
52. On the domestic market, interest rates (i) are a cost of borrowing and have an inverse effect on the willingness
to create Ig.
Aggregate Analysis (AD and SRAS) (AD/AS)
53. Any change that can be connected to C + Ig + G + Xn will be a change in AD first.
54. Any change that can be connected to input costs, resource availability, wage rates, or worker productivity will
change the SRAS.
Schools of Economics
55. Classical economists believe that competition is good and the invisible hand will create better goods, cheaper
goods, and more competition.
56. Classical economists believe in flexible prices and wages, long run balance near Full Employment GDP (Say’s
Law).
57. Classical economists want government to promote competition, stop monopolies and cheating, stop actions that
limit flexible prices and wages.
58. Neo-classical economists like the idea of tax cuts for trickle down growth.
59. Neo-classical economists also like the idea of tax cuts to starve government’s ability to interfere with
competition.
60. Keynesians believe that competition is flawed and must be corrected in the Short Run.
61. Keynesians believe that Fiscal Policies will focus on C and G.
62. Keynesians believe that wages are sticky and prices are stuck by the Ratchet effect.
63. Monetary policy advocates don’t think Keynesians can time policy correctly.
64. Monetary policy advocates don’t think Keynesians can fight inflation.
65. Monetary policy advocates support fine tuning with interest rates.
Countercyclical Policies: Fiscal and Monetary
66. Always connect Fiscal Policies to Keynes and Congress.
67. Congress can change taxes and government spending and target C and G of AD. Use the terms “expansionary
and contractionary” policies
68. When in a recession, assume that tax cuts and spending increases will create deficits and that crowding out can
occur.
69. Always connect Monetary Policies to the FED (Central Bank).
70. When the Fed buys bonds it is “Easy Money” policy (expansionary). Remember BB = BB (Buy Bonds = Big
Bucks).
71. When the Fed sells bonds it is “Tight Money” policy (contractionary).
Remember SB = SB (Sell Bonds = Small Bucks).
The OMC (FOMC) is always connected to the bond markets.
72. Bond “prices” and interest rates are inverse in values.
73. All Fed policies target the Money Supply, interest rates, Ig, AD.
Banks Creating Money
74. The Loan Multiplier/Reserve Multiplier formula is 1/reserve requirement (rr).
75. Demand Deposits (DD) are a bank liability and must equal bank assets
76. Required Reserves (RR) are a bank asset and are set by the rr.
Excess Reserves (ER) are the monies banks can lend from each DD.
77. RR and ER must equal DD.
78. ER x the Loan Multiplier will equal to new loans for the economy which are assumed to be new Demand
Deposits.
If someone is using cash to create a new DD, then the ER x Loan Multiplier will equal New Money Supply.
If the Fed is buying bonds that become DDs, then the ER x Loan Multiplier plus the original bond amount will equal New Money
Supply.
Phillips Curves
79. The relationship between inflation and unemployment is assumed to be inverse.
80. Combining the inflation % and the unemployment % is known as the Misery Index.
81. The changes in the business cycle due to changes in AD will move points along the Short Run Phillips Curve
(SRPC).
82. Changes in SRAS will move the entire SRPC. The two curves will move in opposite directions.
83. When the SRPC moves outward, it will usually be connected to Stagflation.
84. The Long Run Phillips Curve (LRPC) is equated to the Natural Rate of Unemployment (NRU) for a country.
It is assumed by Classical Economists that the NRU is greater for countries that give the unemployed more help, or time to find a new
job.
Topic 15: Monetarism (Not the Same as Monetary Policy by the Fed!)
85. The Equation of Exchange is MV = PQ.
86. Monetarists assume that velocity is “stable”.
87. The general assumption of this thinking is that most inflation can be controlled by limiting the growth of the
Money Supply.
International Comparative Advantages
88. If two countries have similar resources, the country that can produce the most has the Absolute Advantage.
89. The country with the lowest opportunity cost has Comparative Advantage.
Countries will trade to gain beyond their own domestic opportunity cost.
90. Both countries must gain for trade to occur, but both will gain if they trade their own comparative advantage
products.
International Balance of Payments Accounting
91. BOP Assets (Credits) are Demand for a country’s money and are “inflows”.
92. BOP Liabilities (Debits) are Supply of a country’s money and are “outflows”.
93. Current Accounts are the transfer of money/wealth that is immediate.
94. Capital/Financial Accounts are the transfer of money/wealth that occur between countries, but hope to create
future revenue.
95. Reserves are used by countries if Current Accounts do not equal Capital/Financial Accounts.