Macroeconomic Principles ECO 2013
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This 19 page Class Notes was uploaded by Stanford Kuhlman on Monday October 12, 2015. The Class Notes belongs to ECO 2013 at Florida Atlantic University taught by Staff in Fall. Since its upload, it has received 35 views. For similar materials see /class/221664/eco-2013-florida-atlantic-university in Economcs at Florida Atlantic University.
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Date Created: 10/12/15
Review for Test 3 Things to look over Read chapters Know the material in the PowerPoint slides Be sure to be able to do all of the inclass exercises Review onine homework Office Hours Prof Bosshardt in KH 152 M and T 1000 to 1130 and 100 to 300 Erika Mrazkova in KH 143 R 1100 to 100 and 200 to 320 Chapter 9 Aggregate Demand and Aggregate Supply You should know what is on the vertical and horizontal axis 0 You should know the relationship between real GDP and unemployment You should know that aggregate demand AD can be thought of being composed of CIGX M You should know AD is downward sloping 0 You should understand the wealth effect export effect and interest rate effects You should know what shifts AD and why 0 Consumer spending C is changed by wealth expectations debt taxes 0 Investment I is changed by interest rates and expected rate of return 0 Government spending G is changed by fiscal policy 0 Net Exports X M is changed by income in other countries and exchange rates 0 You should know the difference between long run and short run 0 You should know why long run aggregate supply is vertical at the level of potential GDP 0 You should know what shifts long run aggregate supply 0 Change in resources capital labor etc change potential GDP and shift LRAS 0 Change in technology change potential GDP and shift LRAS 0 Know relationship between potential GDP full employment and the natural rate of unemployment 0 Know what shifts SRAS o Shifts SRAS alone does not shift LRAS I Money wages money price of oil money price of any resource 0 Shifts SRAS along with LRAS I Change in resources change in technology may be brought about by changes in I taxes government spending that change incentives supply side economics 0 Know the economy produces where SRAS and AD intersect 0 Be able to identify a recessionary or an inflationary expansionary gap 0 Know when the economy is in long run equilibrium at potential GDP 0 Be able to explain how the economy reacts in the short and long run to changes in o Aggregated demand what ifG increases 0 Short run aggregate supply what if oil prices rise 0 Note Know what happens to price level real GDP unemployment etc 0 Note Be sure to be able to illustrate in AD AS diagram 0 Understand how the multiplier works 0 Government spending multiplier 1 1 MPC 0 Tax multiplier 1 1 MPC 0 Know that AD shifts by change in T or G multiplied by multiplier 0 Inflation 0 Know what is meant by demand pull inflation and what causes it 0 Know what is meant by cost push inflation and what causes it Chapter 10 Fiscal Policy 0 Know what fiscal policy is and the two types 0 Discretionary fiscal policy 0 Automatic fiscal policy 0 Know how changes in government spending change AD 0 Government spending multiplier 0 Know how changes in taxes change AD 0 Explain why changes in tax change C or 0 Tax multiplier 0 Know how to calculate how much change in G or T is necessary to move the economy to full employment 0 Know what is meant by supply side economics 0 Know why changes in taxes change the equilibrium amount of labor and LRAS 0 Know what the Laffer curve is and what it says about high tax rates 0 Know the difference between an average tax rate and a marginal tax rate 0 Know what is meant by a progressive regressive and proportional tax rate 0 Know how automatic fiscal policy works automatic stabilizers 0 Explain what the types of lags are and how they affect fiscal and monetary policy Chapter 11 Federal De cits and Public Debt 0 Know what a budget deficit is 0 Know the difference between the US federal budget deficit and US national debt 0 Be able to explain the differences between the approaches to federal financing 0 Annual balanced budget 0 Cyclically balanced budget 0 Functional budget 0 The relationship of C S T C G X M can be rearranged into a number of useful ideas 0 G T S IM X I Government deficit is funded through either 0 domestic S I or 0 international M X sources 0 ST GM X I Investment in the US can be funded by 0 S US domestic saving o T G US government budget surplus o M X US trade deficit which results in Sin hands of foreign investors 0 Know what is meant by crowding out 0 Be able to show crowding out in the loanable funds diagram o I S T G ignore foreign elements 0 Know when a budget deficit might be offset or when it might not hurt growth 0 Know the arguments why a trade deficit might not be bad 0 Know implications of the trade deficit Chapter 9 Aggregate Demand and Aggregate Supply Dr Bosshardt Chapter 9 Model of the Macroeconomy III Flexible price model III Keynesian model prices fixed III Relates three things I Price Level I Real GDP I Unemployment indirectly Dr Bosshardt Chapter 9 Aggregate Demand III Relationship between price level and the quantity of real GDP demanded III How much do people in the economy want to buy in the economy at each price level Dr Bosshardt Chapter 9 Aggregate Demand Components III Think about expenditures III C I G X M Consumption by households Investment by firms in plant and equipment Government expenditures Exports to consumers abroad minus imports Dr Bosshardt Chapter 9 AD is negatively sloped III Wealth effect I Real wealth III Impact on exports l Substitute between domestic and foreign goods III Interest Rate effects I Prices increase gt interest rates increase gt investment Dr Bosshardt Chapter 9 What shifts AD Think What changes C or I or G or X M That is expenditures Dr Bosshardt Chapter 9 What shifts AD continued III Consumer spending I Wealth l Consumer expectations I Household debt I Taxes Dr Bosshardt Chapter 9 What shifts AD continued III Investment I Interest rates I Expected rate of return on investment III Expectations Dr Bosshardt Chapter 9 What shifts AD continued III Government spending I Fiscal policy part III Net Exports I Income in other countries I Exchange rate changes Dr Bosshardt Chapter 9 Sequester Dr Bosshardt Chapter 9 Long Run vs Short Run III Want to know I Price Level I Real GDP gt Employment III Long Run vs Short Run l Long Run Resource money or nominal prices have had time to adjust to equilibrium I Short Run Resource money or nominal prices have not had time to adjust to equilibrium usually te story of labor wages being fixed Dr Bosshardt Chapter 9 LongRun Aggregate Supply III Aggregate Supplygt Relationship between price level and quantity of real GDP suppHed I Price level measured by GDP deflator but may just say CPI III LongRun Aggregate Supply is vertical Why I Price level does not impact real GDP I Long Run gt resource prices have adjusted gt full employment gt natural rate of unemployment Dr Bosshardt Chapter 9 LongRun Aggregate Supply Vertical III Example Price level rises 10 money prices wages rise 10 I real wage remains constant gt no incentive to change behavior I Real wage money wage X 100 price level I We are at our potential level of GDP Dr Bosshardt Chapter 9 Potential GDP III What does potential GDP depend on gt What impacts what a country can produce I Resources III Quantity of labor III Quantity of capital I Technology Dr Bosshardt Chapter 9 What shifts LAS 1 Change in quantity of labor at full employment 2 Change in quantity of capital 3 Change in technology Dr Bosshardt Chapter 9