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ECO105Y1 Chapter Notes - Chapter 8: Macroeconomics, Loanable Funds, Output Gap

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orchidcamel574
11 Apr 2016
School
UTSG
Department
Economics
Course
ECO105Y1
Professor
Avi J.Cohen

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Document Summary

Eco105 economics: chapter 8: skaing to where the puck is going. The full-employment output of an economy can be modelled as: points on a producion possibiliies fronier (ppf) Long-run aggregate supply (potenial gdp): the quanity of real gdp supplied when all inputs are fully employed: full-employment outcome of coordinated smart choices. Long-run aggregate supply curve (las) verical line at potenial gdp; quanity of potenial gdp does not change when the price level changes: this line is simply a target, and outcome to aim for in macroeconomics. Exising inputs: determine the posiion of the ppf and las curves, are unused or unemployed at points inside a ppf, are unused or unemployed at any quanity of real gdp less than potenial gdp. Macroeconomic players - consumers, businesses, government - make two kinds of plans for supplying canadian real gdp: 1. Business supply plans for exising inputs with ixed input prices are similar to microeconomic choices about quanity supplied.

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Related Questions

1. Does the Aggregate Demand (AD) curve always slope downward? Discuss and use explanations (interest rate effect, wealth effects, open economy effect).

2. The Aggregate Supply (AS) curve slopes upward to reflect the profit motive of businesses. So, why there are two versions of the AS curve( i.e. short run and long- run). Discuss.

3. Does Aggregate Demand and Aggregate Supply always occur at full-employment level?

a) If yes, will there be some unemployment? Explain

b) If no, then the actual real GDP may be different from the potential real GDP. When the actual and potential GDP are not the same, then the economy is either in a recessionary gap or inflationary gap. Explain

The graph below depicts an economy where a decline in aggregate demand has caused a recession. This economy's current level of real GDP (Y1) is below its long-run equilibrium, which is illustrated by the long-run aggregate supply curve (LRAS), and a price level (P1) below the equilibrium value of Pe. a. Without any fiscal policy, we expect the economy to eventually return to full employment on its own. Use the graph below to illustrate that process. Instructions: Use the tool provided 'New Curve' to plot the appropriate line (2 points total). After placing the curve, double click or tap the question marks next to it and choose whether to label the curve as AS1, LRAS1, or AD2 from the dropdown. b. Assume the government instead enacts fiscal policy to reduce the burden of the recession. Use the graph below to illustrate that process. Instructions: Use the tool provided 'New Curve' to plot the appropriate line (2 points total). After placing the curve, double click or tap the question marks next to it and choose whether to label the curve as AS1, LRAS1, or AD2 from the dropdown. c. When comparing the two options for restoring the economy to its full-employment level of output, the benefit of allowing the economy to return to full employment on its own, as seen in part a, is that: the economy will recover faster without fiscal policy. lower unemployment and higher real GDP are reached. full employment is reached with a higher price level. full employment is reached with a lower price level.

QUESTION 41

The consumer price index is intended to measure the cost of all goods purchased in the economy over time.

True

False

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QUESTION 42

When an economy has reached a zero unemployment rate, it is said to have reached full employment.

True

False

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QUESTION 43

The official unemployment rate is a useful but not altogether accurate measure of joblessness.

True

False

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QUESTION 44

The two types of reserves are federal reserves and required reserves.

True

False

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QUESTION 45

Automatic stabilizers, such as tax revenues and transfer payments, eliminate fluctuations in the business cycle.

True

False

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QUESTION 46

When the actual rate of unemployment is equal to the natural rate of unemployment, we conclude that there is no cyclical unemployment.

True

False

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QUESTION 47

Increased government regulation can cause the aggregate supply curve to shift to the left.

True

False

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QUESTION 48

The price index in the base year is normalized so that it equals 100.

True

False

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QUESTION 49

If the Federal Reserve wants to increase the money supply, it should raise the required reserve ratio.

True

False

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QUESTION 50

The aggregate supply curve in the long run is vertical because wages and other input prices respond completely to a change in price level.

True

False

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QUESTION 51

Public choice analysis helps us to understand why deficits seem inevitable, since we always pay the full costs of government programs today.

True

False

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QUESTION 52

Expansionary demand-side fiscal policies set up a tradeoff between increasing output at the expense of raising prices.

True

False

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QUESTION 53

Cathy works part-time as a bookkeeper but would like to have a full-time position. She has been actively searching for months but so far has not found a job. According to the Bureau of Labor Statistics, Cathy is unemployed.

True

False

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QUESTION 54

The real rate of interest is the nominal rate of interest times the inflation rate.

True

False

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QUESTION 55

The time required to comprehend that a recession has in fact begun is called the recognition lag.

True

False

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QUESTION 56

If an economy is in long-run equilibrium, it is also in short-run equilibrium.

True

False

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QUESTION 57

Policymakers can increase output by enacting policies that expand government spending, consumption, investment, or net exports or reduce taxes.

True

False

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QUESTION 58

When Disney builds a new amusement park in the United States, it is counted as part of GDP.

True

False

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QUESTION 59

The oil shock of 1973 led to demand-pull inflation.

True

False

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QUESTION 60

Casey is a 16-year-old high school student who has no marketable skills. He has been browsing the want-ads in the local newspaper for months but finally got so discouraged that he quit looking. According to the Bureau of Labor Statistics, Casey is unemployed.

True

False