AP Econ Unit 5 Flashcards
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| 6802863083 | velocity of money | the speed which money is spent | 0 | |
| 6802863084 | infrastructure | the capital goods that allow for enterprise and production to occur within an economy ex: roads, plumbing, legal system, electrical grid | 1 | |
| 6802863085 | stagflation | a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation) | 2 | |
| 6802863086 | LRAS |  | 3 | |
| 6802863087 | SRAS |  | 4 | |
| 6802863088 | short run | -time period in which nominal prices (like wages_ haven't had time to adjust to price level changes -workers may be unaware -fixes wage contracts -minimum wage laws | 5 | |
| 6802863089 | long run | -time period by which nominal resource prices (like wages) are fully able to adjust to price level changes | 6 | |
| 6802863090 | Laffer Curve | indicates the total tax revenue in relation to the tax rate |  | 7 |
| 6802863091 | aggregate supply shocks | any event that causes the aggregate supply curve to shift inward or outward | 8 | |
| 6802863092 | Phillips Curve | -in the short run, there is a trade off between the rate of inflation and the rate of unemployment (if inflation decreases, unemployment increases) -when AD shifts right, we move left along the Phillips curve -aggregate supply shocks can cause both higher rates of inflation and higher rates of unemployment -when AS shifts left, both unemployment and inflation rise - entire Phillips curve shifts |  | 9 |
| 6802863093 | Monetarists | -milton firedman -believes in the long run story (eventually) -cause of instability: bad money supply -the "equation of exchange" MV=PQ -velocity is stable -is we're are at full employment, Q can't increase either -if M increases, P will too -more money will lead to higher prices, not more GDP -increase money supply 3-5% per year -try to keep price level relatively constant | 10 | |
| 6802863094 | Keynesians | -john keyes -don't fully believe in the long run story -need government intervention -fiscal policy - C+I+G+X(n) -investment = instability -argued SRAS had horizontal range, prices don't go down because of sticky wages -wages and prices area not fully responsive | 11 | |
| 6802863095 | Classical view | -friedrich von hayek -believes the long run story (vertical AS) -leave the free market alone --> it'll get to full employment by itself -founded by Adam Smith (laissez-faire policy) -believes market will go back to LRAS, so essentially we have a vertical AS | 12 | |
| 6802863096 | Rational Expectationists | -believes long run story and believes it's quick -businesses, consumers, and workers EXPECT changes in policies/circumstances to have certain effects on the economy -in pursuing their own self-interest, they will take actions to make sure those changes affect them as little as possible -believes wages/prices are flexible | 13 | |
| 6802863097 | MV= | PQ money supply x velocity = price x quantity of production PQ = nominal GDP | 14 | |
| 6802863098 | physical capital | all human-made goods that are used to produce other goods and services; tools and buildings | 15 | |
| 6802863099 | human capital | the skills and knowledge gained by a worker through education and experience | 16 | |
| 6802863100 | What factors are most influential in causing economic growth? | -increased resources -more productive resources -technological innovation -producing capital in place of consumer goods -increasing international trade | 17 | |
| 6802863101 | What factors could lead to a change in LRAS? | -increased resources -more productive resources -technological innovation -producing capital in place of consumer goods -increasing international trade | 18 | |
| 6802863102 | How does the Keynesian AS supply curve look differently from how the Classical theorists would draw it? | keynesian = horizontal range of SRAS classical = vertical SRAS | 19 | |
| 6802863103 | What is the difference in the long run and short run Phillips curve? | long run Phillips curve is vertical | 20 | |
| 6802863104 | What could cause a movement along a country's short-run Phillips curve toward higher unemployment and lower inflation? | A recession in the economies of the nation's major trading partners | 21 | |
| 6802863105 | Changes in which of the following factors would affect the growth has occurred? I. Quantity and quality of human and natural resources II. Amount of capital goods available III. Technology | I, II, III | 22 | |
| 6802863106 | What would indicate that economic growth has occurred? | The long-run aggregate supply curve shifts to the right | 23 | |
| 6802863107 | Under rational expectations, an announced expansion in the money supply will change nominal and real GDP in which of the following ways? | nominal GDP: increase real GDP: no change | 24 | |
| 6802863108 | According to the Keynesian model, which of the following would increase aggregate demand? | An increase in investment | 25 | |
| 6802863109 | A short-run Phillips curve shows an inverse relationship between | inflation and unemployment | 26 | |
| 6802863110 | A country's physical and organizational structures that contribute to overall productivity is called its: | infrastructure | 27 | |
| 6802863111 | According to both Monetarists and Keynesians, which of the following happens when the Fed reduces the discount rate? supply of money: market interest rates: | Supply of money increases Market interest rates decrease | 28 | |
| 6802863112 | If consumers and producers can accurately anticipate all the changes in the economy, monetary policy cannot impact real output according to | rational expectations theory | 29 | |
| 6802863113 | A rightward shift of the Phillips Curve suggest that | a higher rate of unemployment is associated with each inflation rate | 30 | |
| 6802863114 | If the money stock increases but nominal GDP remains constant, which of the following has occurred? | Velocity of money has decreased | 31 | |
| 6802863115 | What argument about recession is typically associated with classical economists? | The economy is self-correcting and thus will not remain in recession indefinitely | 32 | |
| 6802863116 | When would the use of fiscal policy (AD - to return to full employment) generally lead to extremely high levels of inflation? | Following a negative supply shock | 33 | |
| 6802863117 | What is the basic equation underlying Keynesian perspective? | C + I + G + X(n) = GDP | 34 | |
| 6802863118 | According to monetarists, inappropriate monetary policy | is a major source of macroeconomic instability | 35 | |
| 6802863119 | The long run in macroeconomics is that in which | the costs of resources change with the price level | 36 | |
| 6802863120 | Assuming prices and wages are flexible, inflation caused by an increase in aggregate demand will | raise nominal wages, and which eventually decreases the short-run aggregate supply curve, thus decreasing real output to its original level | 37 | |
| 6802863121 | If there is a permanent and sustained increase in labor productivity | the production possibilities curve would shift outward and the LRAS curve would shift rightward | 38 | |
| 6802863122 | An increase in which of the following is most likely to promote economic growth? | A consumption spending | 39 | |
| 6802863123 | Which of the following would contribute to economic growth? -a drop in wages -a rise in individual income taxes -an increase on business taxes -an improvement in the education system | improvement in the education system | 40 | |
| 6802863124 | Which is the best indicator of a nation's standard of living? | real GDP per capita | 41 | |
| 6802863125 | Which of the following would normally not lead to a higher standard of living? | population growth | 42 | |
| 6802863126 | Which of the following would probably not be considered part of a nation's infrastructure? | oil deposits | 43 | |
| 6802863127 | According to Rational Expectations theory, fully anticipated easy monetary policy: -won't do anything -will lead to a drop in GDP -will lead to an increase in GDP -will cause stagflation | won't do anything | 44 | |
| 6802863128 | Real and nominal income differ in that | real income accounts for inflation | 45 | |
| 6802863129 | In the long run, nominal wages are considered to be | flexible, although they are inflexible in the short run | 46 | |
| 6802863130 | According to Keynesians, if government expenditures and taxes are lowered by the same amount | AD will drop | 47 | |
| 6802863131 | A decrease in which will most likely reduce the standard of living in a nation? | labor productivity | 48 | |
| 6802863132 | In the long run, inflation caused by increased demand will | drive up wages reducing supply increasing inflation | 49 | |
| 6802863133 | Which is true about the shape of the Laffer curve | once tax rates are high enough, people work fewer hours | 50 | |
| 6802863134 | Following an adverse supply shock | the economy will shrink | 51 | |
| 6802863135 | According to the classical model, | SRAS is vertical | 52 | |
| 6802863136 | Which of the following will NOT generally lead to economic growth? | less cyclical unemployment | 53 | |
| 6802863137 | In the short run, nominal wages are considered to be | unchanging | 54 | |
| 6802863138 | What does economic growth look like on a long-run Phillips Curve? | it shifts left |  | 55 |