# Macroeconomics Chapter 7-8

22 cards

econ

Created Feb 1, 2011
by
cjbetts

 Shuffle Cards

# Flashcard Set Preview

 Side A Side B 1 Economic fluctuations and Key Characteristics the cyclical behaviour of the economy over timeBusiness cycles are not regular cycles;... 2 Recession the economy is growing at a rate below normal-Unemployment rises sharply in a recession and... 3 Expansion the economy is growing at a rate above normal 4 Potential output measures the amount of GDP (output) when resources (capital and labour, technology) are being... 5 output gap, recessionary and expansionary gap When Output Y does not equal potential output Y*Recessionary... 6 Four types of unemployment: 1. Frictional -  looking for work; looking for workers (job matching takes time).2.... 7 Natural rate of unemployment = frictional + structural + seasonal unemployment; - - denoted u*. 8 Cyclical unemployment u - u*(total unemployment - natural rate of unemployment)- Cyclical unemployment varies... 9 Okun's Law 100 x ((Y* - Y) / Y*)  = 2 x (u - u*)- An estimate of Y* and Okun's... 10 basic Keynesian model Objective: to set down a simple model of aggregate demand that explains departures from... 11 Menu Cost it is costly to change prices; in the short-run it may be best to set prices and meet... 12 Planned Aggregate Expenditure (PAE) - At any point in time, consumers, rms, and governments have expenditure plans; what theywould... 13 Investment and planned investment I = Ip + unplanned inventory investment 14 Aggregate Expenditure Y - PAE = I - Ip = unplanned inventory investment 15 Major component of PAE? Consumption Function:C = C + c  (Y - T)- C is... 16 Aggregate Saving S = (Y - T)  C = - C + (1 - c)  (Y - T)Basis reasoning: all else equal,... 17 Short Run Equilibrium where Y = PAE 18 Income-Expenditure Multiplier Principle: changes in autonomous expenditure give rise to larger changes in output. This is... 19 Fiscal Policy: Stabilizing Expenditure If output Y is below potential output Y* (a recessionary gap) then an increase... 20 Qualifications of Fiscal Policy both taxes and expenditure, can a ffect actual output Y as well as potential output Y*-... 21 Automatic Stabilizers changes in government spending and taxation that happen automatically and work to stabilize... 22 Reduce the size of the multiplier effect savingsbut also, taxes and imports (leakage effect)