Economic Growth
A sustained expansion of production possibilities.
Oil prices hikes
Decrease aggregate supply.
During the inflationary gap
The aggregate demand curve and the aggregate supply curve intersect at a level of real GDP that exceeds potential GDP.
At the peak of the business cycle
The macroeconomic equilibrium is greater than the level of potential real GDP.
Macroeconomic equilibrium occurs
The aggregate quantity demanded is equal to the aggregate quantity supplied.
A basic precondition for economic growth
A well functioning legal system.
Finances investments which brings capital accumulation.
A faster way of achieving economic growth
Encourage saving.
With a large and growing deficit, the fed may face pressure from the government to
Keep interest rates low, but the fed risks inflation by doing so.
What changes the supply of loanable funds curve shifts
People’s expected future income.
What is a barter system of payment
Different from a money system because money does not require a double coincidence of wants.
What cause Germany hyperinflation
Quantity of money was growing very rapidly.
When a commercial bank receives a deposit. It must keep part of the deposit as cash reserves to satisfy its
Required reserves.
High inflation
Makes money function less well as a store of value.
Banks create money by
Making loans.
Inflation over 50 percent per month.
In the long run, an increase in the quantity of money leads to
An equal percentage increase in the price level.
The “invention” of banking
Goldsmiths in the sixteenth century issued gold receipts which entitled its owners to reclaim their gold on demand.
Banks earn a profit by
Making loans at a higher interest rate than the rates that they offer on their deposits.
The function of money are
Medium of exchange, unit of account, and store of value.
Money is any commodity or token that is
Generally accepted as a means of payment.
A decrease in people’s disposable income
Decreases saving.
The crowding out effect is the tendency for
Higher government budget deficits to decrease investment.
If a government has a budget deficit, it must
Borrow in the loanable funds market.
The opportunity cost of the financial resources used to finance the purchase of capital is
The real interest rate.
An example of finical capital is
The demand for loanable funds includes demand for
Loans, stocks, and bonds.
Economist use the word “capital” to mean
The tools, instruments, and other produced goods used to produce goods and services.
A government policy that taxes saving in order to discourage saving and encourage spending will
Slow economic growth.
Activities that encourage faster growth are
High levels of saving and investment in human capital.
For economic freed to exist
Property rights must be protected and markets must be free.
A reason why many of the third world countries are not achieving an increase in their standard of living is that they
Don’t have social institutions with a strong rule of law and economic freedom.
Economic freedom
Is founded, in part, on the rule of law.
Property rights
Include physical, financial, and intellectual property.
Data shown, in the long run, sustained growth in the quantity of labor will come from
Increase in the population.
Countries that enjoy economic growth
Have property rights and markets which provide incentives for discovering new technologies.
Economic freedom requires
The rule of law and the ability to enforce the laws.
A country will likely experience an increase in poverty if
It’s real GDP growth rate decreases or slows over time.
An important condition required for economic growth is
Economic freedom.
The rule of 70, as applied to real GDP growth, can be used to find the
Number of years it takes for the level freak GDP to double.
Aggregate hours shows a sustained increase only as a result of
Any increase in the population.
Growth in physical capital depends most directly upon the
Amount of savings and investment.
An increase in labor productivity
Increases the standard of living.
In the long run, most of the growth in aggregate hours comes from
Population growth.
Federal budget
An annual statement of expenditures and tax revenues of the U.S. Government.
National debt
The amount borrowed by the government to finance past budget deficits.
Federal funds rate
Is a potential monetary policy instrument for the fed.
Where does the federal reserve set the money policy
In the U.S.
The steps in the transmission of monetary policy are
The federal reserve lowers the federal funds rate, which lowers the real interest rate, and leads to an increase in aggregate demand.
What does the monetary policy do EXCEPT
Keeping the long term nominal interest rate equal to the real interest rate plus the inflation rate.
If the federal reserve lowers the federal funds rate
Other short term interest rates fall.
When the fed lowers the federal funds rate, which of the following economic variables resounds most slowly
The inflation rate.
A change in monetary policy affects
Consumption expenditure, investment, and net exports.
The national debt can only be reduced if
The federal budget is in a surplus.
When government outlays exceed tax revenue

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