ECON 102: Chapter 20
22 Cards in this Set
| Front | Back |
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describe the classical theory
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money neutrality
money supply affects nominal but not real variables
classic theory says nominal changes do not affect real variables
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describe the difference between real & nominal variables
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real=relative
nominal=absolute
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Describe the long-run supply curve
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vertical
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describe short run supply curve
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upward sloping
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why is there a difference between short & long run supply curves
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long run is determined by economys supply of labor, capital, & nat resources, not influenced by price level
nominal variables like price level don't affect real variables(output)
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what are other names for natural rate of output?
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potential output, full employment output
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what causes output to differ from its natural level in the short term?
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differences from expected natural price level, higher, output rises, lower, output drops
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what shifts demand curves in long run?
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null
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Give a qualiative def of GDP.
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market value of all final goods and services produced in a given country during a given period of time
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equation for GDP?
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y=C + I + g + NX
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gdp deflator?
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nominal/real
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What is the CPI & how is it calculated?
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price of a basket of goods, which stay same from year to year, pick one base year as 100, and inflation rate from one year to the next is diff is % change in CPI
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What are some problems with CPI as measure of standard of living?
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substitution bias(buy less of more expensive goods), intro of new goods, unmeasured quality changes
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what are two ways of measuring inflation & why are they different?
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-include diff things, CPI only consumer goods, GDP only produced in US
-weighting of CPI is arbitrarialy set & stays the same, GDP reflects actual prices
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Does CPI over or under estimate inflation? Economic growth? Why
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Overestimates inflation, doesnt account from benefit of new goods, and thus underestimates ec growth
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what is the trade balance?
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net exports +=trade surplus
net exports - trade deficit
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What is net capital outflow & how is it different from net imports/exports?
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investment instead of goods, amount we invest abroad-foreigners invest in us
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What is foreign direct investment? foreign portfolio?
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direct=managed by the investor
portfolio=buying stock
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what influences net capital outflow?
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risks in that country, interest rates in each country, govt policies on investment abroad
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Does NCO equal net exports? Why?
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yes, it must
net exports=>money paid to us by foreigners, we have to do something with that currency, invest it in them
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what is the real exchange rate?
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what fraction of our price is theirs?
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what is the money multiplier, & what does it address?
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1/reserve ratio
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