Macroeconomics – Aggregate Demand/Supply, Fiscal & Monetary Policy

Fill-in-the-blank flashcards covering Aggregate Demand & Supply, fiscal policy, monetary policy, money, and related macroeconomic concepts.

Aggregate demand = ___

C + I + G + NX (X - M)

The Aggregate Demand curve is __ sloping.

downward

A fall in the price level causes the quantity of real GDP demanded to __.

increase

The __ effect says higher prices reduce the real value of money holdings, lowering consumption.

Real Balances

In the Interest Rate effect, higher price level raises money demand and __ rates, reducing spending.

interest

When U.S. prices rise relative to foreign prices, exports fall and imports rise; this is the __ purchases effect.

foreign

An increase in consumer wealth shifts the AD curve to the __.

right

Repaying loans and higher taxes shift Aggregate Demand to the __.

left

Government spending cuts cause AD to shift __.

left

Appreciation of the U.S. dollar __ exports and shifts AD left.

decreases

Short-run Aggregate Supply (SRAS) is __ sloping.

upward

Sticky wages help explain why input prices are fixed in the __ run.

short

In the long run, the Aggregate Supply curve is a __ line.

vertical

Higher productivity shifts the Aggregate Supply curve to the __.

right

Cost increases for resources shift the SRAS curve to the __.

left

The point where AD and SRAS intersect is called __ equilibrium.

short-run

Real GDP below potential and high unemployment describe a(n) __ gap.

recessionary

Inflation caused by rising AD is called __-pull inflation.

demand

Simultaneous stagnation and inflation is known as __.

stagflation

The short-run Phillips Curve shows an inverse relationship between inflation and __.

unemployment

Expansionary fiscal policy involves __ taxes or higher government purchases.

lower

Contractionary fiscal policy is used primarily to control __.

inflation

The government spending multiplier equals 1 / (1 – __).

MPC

The tax multiplier equals –MPC / (1 – __).

MPC

Features that automatically dampen fluctuations, like progressive taxes, are called __ stabilizers.

automatic

The time needed to recognize a recession is the __ lag.

recognition

Government borrowing that raises interest rates and crowds out private investment is called __ out.

crowding

Money serves as a medium of exchange, a unit of account, and a __ of value.

store

The narrowest money aggregate that includes currency and checking deposits is __.

M1

M2 equals M1 plus small time deposits and __ market mutual funds.

money

The equation of exchange is M × V = P × __.

Y

Velocity equals Price level times output divided by __ supply.

money

The required reserve ratio determines the theoretical money __ (1/rr).

multiplier

Excess reserves equal total reserves minus __ reserves.

required

The nominal interest rate approximately equals real interest plus expected __ (Fisher Equation).

inflation

Open market __ of bonds by the Fed increases the money supply.

purchases

The interest rate banks charge each other for overnight loans is the __ funds rate.

federal

Raising the reserve requirement generally __ the money supply.

decreases

Lowering the discount rate makes bank borrowing cheaper and tends to __ lending.

expand

Expansionary monetary policy __ interest rates to stimulate investment.

lowers

A liquidity __ occurs when increases in money supply fail to reduce interest rates.

trap

Paying interest on excess __ can influence banks’ incentive to lend.

reserves

The Fed’s main policymaking group is the __ (abbrev.)

FOMC

Money demand consists of transaction demand plus __ demand.

asset

In the money market, the supply curve of money is drawn as a __ line.

vertical

When money demand rises, interest rates will __ unless the Fed increases supply.

rise

Cost-push inflation originates from a leftward shift of the __ supply curve.

aggregate

During an expansion, automatic stabilizers work to __ aggregate demand.

reduce