1 LRAS is the economy s output at full employment Resources the number of workers the size of capital stock and technology determines the level of LRAS LRAS is potential GDP because it represents where GDP will be if all resources are utilized at full employment U bar means full employment 2 All of these would shift LRAS to the right 3 SRAS is the current supply of goods Firms and businesses determine SRAS It has a positive slope because of input prices menu costs and the fact that at a high PL the quantity of goods services firms are willing to supply increases 4 ALL 5 EASY PEASY LEMON SQUEEZY 6 SR equilibrium is at a higher PL and lower output The recession caused by the supply shock leads to falling wages and prices shifting SRAS back to LRAS and back to potential at PL 100 a Stagflation occurs when SRAS shifts left and any adjustment mechanism which shifts AD would either lower PL and raise U or vice versa b Wages fall and so do prices because the economy is currently in a recession at high PL as it returns to Y bar 7 Leftward shift in AD causes lower PL but lower RGDP a Since recession means higher unemployment workers will be more willing to accept lower wages Since demand is lower firms will then cut prices This is why the economy will automatically return to Y bar by a shift right in SRAS b Wages will fall and so will prices I said it in 7a so well I don t have to answer that shiznitt 8 9 Fiscal Policy will decrease taxes which increases income which increases consumption and increase government expenditures during a recession Both of these will effect AD This will dramatically raise the debt though because debt tax revenue govt expenditures 10 During a recession monetary policy will react with an open market purchase This will increase M1 in the economy It will also shift the supply of loanable funds to the right which will lower interest rates Lower interest rates means spend more save less which shifts AD to the right 1 BOTH 9 and 10 effect AD 11 The internet It was a shock to supply a Positive shock on the US economy b c The internet increased worker productivity d LRAS and SRAS both shifted to the right which means it increased our economy s potential at full employment AD wasn t effected 12 A barter economy is when goods and services are traded directly a This means a double coincidence of wants is needed Trading 13 Money simplifies transactions Widely accepted and can buy anything Increases 14 Medium of exchange store of value unit of account standard of deferred e Not sure Inefficient PPF payment 15 Credit cards are instant loans 16 M1 Currency in circulation money in checking accounts travelers checks 17 The Federal Reserve System was created on Dec 23 1913 in response to a series of financial panics Intended to maximize employment stabilize prices and moderate long term interest rates 18 Oversee the nation s open market operations OMS and OMP Sets monetary policy to achieve targeted federal funds rate 19 FOMC establishes how much money is in the economy and also largely effect interest rates which directly effect consumption and investment 20 They ll be talking about employment consumer confidence RGDP fiscal policy and proper monetary policy Decisions are made w respect to interest rates It s very important to discuss how to communicate decisions to public 21 ST i rate refers to loan of 1 year or less LR i rate refers to loan of 10 years or M2 more 22 Targeted unemployment was not reached yet so they wanted to keep interest rates low to keep consumer confidence and stimulate consumption 23 Same as 22 I think 24 Businesses control their investments with respect to interest rates so if monetary policy is going to raise interest rates they won t invest simply due to expectations 25 Depends on current output and employment If economy is in somewhat of a recession with high unemployment it will keep its foot on the gas and keep interest rates low If economy is healthy and close to Y bar it will start to begin to consider in the near future yada yada yada tapering and raising interest rates 26 Using OMP and OMS they FOMC can influence interest rates OMP will increase the supply of loanable funds which lowers interest rates 27 US gov t uses Treasury bonds to finance operations Investor buys a bond and receives annual coupon with interest payment Stocks are basically extremely small shares of a company s overall profit that are paid in dividends each year Size of dividend depends on shares of stock x value of stock 28 RGDP only comes out once every quarter but employment reports come out every month Must interpret job report to make decisions about economy 29 Open Market operations are when the FOMC buys or sells bonds During a recession the Fed should do an open market purchase to increase the M1 in the economy and increase the supply of loanable funds which lowers interest rates which increases consumption and investment 30 IDK 31 The supply of loanable funds represents lenders savers and the demand represents borrowers 32 OMP increases loanable funds lowers I increases C and I shifts AD right 33 OMS decreases loanable funds raises I decreases C and I shifts AD left 34 If AD shifts right and the FOMC wanted to step in they would do an OMS to raise interest rates lowering C and I shifting AD left If there were no policy intervention SRAS would shift left to return economy to full output It would shift left because a higher demand means workers will demand a raise which increases input costs which shifts SRAS left 35 The Great Recession was Great because it was caused by a financial crisis a I also think it was so great because Oil Prices increased which shifted SRAS to the left then the credit crunch and household wealth shifted AD left causing a small increase of PL but RGDP was 700 billion short of Y bar 36 No it is at 7 and the threshold of full employment is 6 5 37 The Fed DOES NOT control interest rates Many factors go into interest rates but by controlling monetary policy and the supply of loanable funds they greatly influence interest rates 38 The Fed needs to be clear about its objectives because they largely influence consumer confidence If economy thinks interest rates will be high they will decrease consumption and investment 39 I think 203 000 new jobs were created in November The unemployment rate fell from 7 3 to 7 The numbers were better than October 40 Fuck these articles a The declining unemployment rate is from people leaving the labor force Also