Macroeconomics Cheat Sheet Flashcards

The ratio of unemployed and employed individuals to the total population. It indicates the proportion of the population that is actively participating in the workforce.

The percentage of the labor force that is unemployed. It reflects the number of people who are actively seeking work but unable to find it.

The amount by which overall demand increases for every $1 increase in spending. It's calculated as 1 divided by the Marginal Propensity to Save (MPS).

The amount by which aggregate demand changes for every $1 change in taxes. It's calculated as the negative of the Marginal Propensity to Consume (MPC) divided by the Marginal Propensity to Save (MPS).

The amount by which the money supply can expand for every $1 increase in bank reserves. It's calculated as 1 divided by the reserve requirement.

The actual interest rate adjusted for inflation. It reflects the real cost of borrowing or the real return on lending.

An increase in demand leads to an increase in equilibrium price. This affects market prices and purchasing power.

An increase in supply leads to a decrease in equilibrium price. This influences consumer behavior and inventory levels.

Increases in consumer spending are directly linked to growth in real GDP. It's a sign of a healthy economy.

Higher interest rates make borrowing more expensive, leading to a reduction in investment as businesses become less willing to borrow.

Rising inflation decreases the real value of wages, reducing purchasing power and affecting consumer purchasing decisions.

An increase in aggregate demand typically leads to rising price levels, indicating a shift in economic dynamics.

An increase in SR Aggregate Supply results in lower price levels, indicating more goods and services available in the economy.

Increased government spending directly contributes to a rise in real GDP, stimulating economic activity by increasing overall spending.

An increase in taxes reduces disposable income, leading to a decrease in consumer spending as individuals have less money to spend.

A higher marginal propensity to consume leads to a larger spending multiplier, indicating a stronger response of aggregate demand to changes in income.

Higher interest rates generally lead to a decrease in bond prices as investors demand higher returns for holding bonds with lower interest payments.

An increase in the money supply often leads to a decrease in nominal interest rates as there is more money available for borrowing, making loans cheaper.

Increasing the reserve requirement forces banks to hold more reserves, reducing the amount of money available for lending and decreasing the money supply.

Raising the discount rate makes it more expensive for banks to borrow from the Fed, discouraging borrowing and reducing the money supply.

When the Fed buys bonds, it injects money into the economy, increasing the money supply and encouraging circulation and investment.

Inflation reduces the real value of interest payments, decreasing the real interest rate and potentially encouraging borrowing as it becomes cheaper to borrow in real terms.

Deficit spending, when the government spends more than it collects in revenue, can lead to higher real interest rates due to crowding out effects on private investment.

An increase in capital stock, which is the amount of physical capital available in an economy, leads to economic growth by increasing productivity and output.

A currency appreciation, which means a rise in the value of a currency relative to others, leads to a decrease in net exports as domestic goods become more expensive for foreign buyers.

Higher interest rates can attract net capital inflow, as foreign investors seek higher returns on their investments, influencing currency values and investment patterns.

The ability of a country to produce a good or service at a lower opportunity cost than another country. This is the basis for international trade and gains from specialization.

A situation where the economy is operating at its full potential, with only frictional and structural unemployment, and no cyclical unemployment.

The process by which the Short-run Aggregate Supply (SRAS) adjusts over time to close output gaps. It's driven by factors like wages, resource prices, and expectations.

Policy that uses government spending and taxation to influence aggregate demand and achieve macroeconomic goals. It involves changing government spending, transfer payments, or taxes.

Policy by the central bank to manipulate the money supply to influence interest rates and aggregate demand. It includes adjusting reserve requirements, buying or selling bonds, or changing the discount rate.

The central bank's activity of buying or selling government bonds to adjust the money supply and influence interest rates. Buying bonds injects money into the economy, while selling bonds removes money.

The phenomenon where government deficit spending increases interest rates, crowding out private investment as the demand for loanable funds grows.

Financial capital flows into a country from foreign investors, attracted by factors like high interest rates or economic growth prospects.