Flashcards for:
Introduction to Macroeconomics Concepts

The circular flow model illustrates the movement of goods, services, and money in an economy, involving households, businesses, and the government.

Shifts in the short-run aggregate supply curve can be caused by changes in resource prices, technological advancements, and supply shocks.

The Phillips Curve illustrates the inverse short-run relationship between inflation and unemployment, suggesting that lower unemployment comes with higher inflation and vice versa. In the long run, however, the relationship is vertical, indicating no trade-off.

Cost-push inflation occurs when rising production costs, such as wages or materials, lead to decreased supply, which pushes up prices.

The wealth effect occurs when an increase in price levels reduces the purchasing power of money, leading individuals to feel poorer and reduce their consumption, thereby decreasing aggregate demand.

Automatic stabilizers are government policies, such as taxes and social spending, that automatically adjust to counteract economic fluctuations without legislative action, thus supporting economic stability.

A bowed out PPC indicates increasing opportunity costs, which occur when resources are not easily adaptable for producing both goods.

Changing the reserve requirement affects the amount of money banks are required to hold as reserves. Lowering it increases the money supply by allowing banks to lend more, whereas raising it decreases the money supply.

A country has a comparative advantage if it can produce a good at a lower opportunity cost than another country, leading to more efficient specialization and trade.

In a fixed exchange rate system, the currency value is maintained by the government at a set rate, while in a floating exchange rate system, the currency value is determined by the market forces of supply and demand.

Nominal GDP measures the value of all finished goods and services produced within a country using current prices, while real GDP adjusts for inflation by using constant prices from a base year.

Fiscal policy involves adjusting government spending and taxation to influence economic activity, through expansionary policies to stimulate growth or contractionary policies to cool an overheated economy.

Crowding out occurs when increased government borrowing leads to higher interest rates, which reduce investment spending by the private sector.

The balance of payments consists of the current account (covering exports, imports, investment income, and net transfers) and the financial account (covering financial assets inflows and outflows).

Opportunity cost is the value of the next best alternative foregone as the result of making a decision. It is important because it highlights the trade-offs involved in every economic decision.