All Flashcards
What are the differences between demand-pull and cost-push inflation?
Demand-pull inflation is caused by increased demand, while cost-push inflation is caused by decreased supply due to increased costs.
What are the differences between nominal and real variables?
Nominal variables are measured in monetary units, while real variables are adjusted for inflation and measure actual quantities.
What are the differences between fiscal and monetary policy?
Fiscal policy involves government spending and taxation, while monetary policy involves managing the money supply and interest rates.
How do the causes of demand-pull and cost-push inflation differ?
Demand-pull inflation is caused by excess demand, while cost-push inflation is caused by rising production costs.
What are the different policy responses to demand-pull and cost-push inflation?
Demand-pull inflation can be addressed with contractionary policies, while cost-push inflation is more difficult to address and may require supply-side policies.
What is the difference between the short-run and the long-run effects of monetary policy?
In the short run, monetary policy can affect both nominal and real variables, while in the long run, it primarily affects nominal variables according to monetary neutrality.
What are the differences between lowering the reserve ratio and lowering the discount rate?
Lowering the reserve ratio allows banks to lend out more of their deposits, while lowering the discount rate makes it cheaper for banks to borrow from the Fed.
What are the differences between price level and real GDP?
Price level is the average of current prices across the entire spectrum of goods and services in the economy. Real GDP is inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year.
What are the differences between AD and SRAS?
AD is the total demand for goods and services in an economy at a given price level and time period. SRAS is the total supply of goods and services that firms plan to sell at a given price level and time period.
What are the differences between equilibrium price level and output?
The equilibrium price level is the price at which the quantity of goods supplied equals the quantity of goods demanded. The equilibrium output is the quantity of goods and services produced at the equilibrium price level.
How does increasing the money supply impact interest rates?
Increasing the money supply leads to lower interest rates.
How does increased government spending affect Aggregate Demand?
Increased government spending boosts Aggregate Demand, shifting the AD curve to the right.
How do labor shortages cause inflation?
Labor shortages increase input costs, leading to cost-push inflation.
How does the Fed use open market operations to combat inflation?
The Fed sells government bonds to decrease the money supply, which can cool down inflation.
How does monetary neutrality apply in the long run?
In the long run, changes in the money supply only affect nominal variables like prices, not real variables like output.
How does a decrease in consumer confidence impact demand-pull inflation?
A decrease in consumer confidence decreases consumer spending, reducing the likelihood of demand-pull inflation.
How does a supply shock affect SRAS?
A negative supply shock shifts the SRAS curve to the left, leading to higher prices and lower output.
How does a central bank combat demand-pull inflation?
A central bank can use contractionary monetary policy to reduce aggregate demand and control demand-pull inflation.
Explain how lower interest rates can lead to inflation.
Lower interest rates encourage borrowing and spending, increasing aggregate demand and potentially causing demand-pull inflation.
How does increased productivity affect cost-push inflation?
Increased productivity can offset increased input costs, reducing the likelihood of cost-push inflation.
In a Demand-Pull Inflation graph, what happens to the AD curve?
The AD curve shifts to the right, increasing both price level and real GDP.
In a Cost-Push Inflation graph, what happens to the SRAS curve?
The SRAS curve shifts to the left, increasing price levels but decreasing real GDP.
In a Wage-Price Spiral graph, what happens to the AD and SRAS curves?
The AD curve shifts right, and the SRAS curve shifts left, resulting in higher price levels with little change in real GDP.
What does the intersection of AD and SRAS represent?
The short-run equilibrium price level and output.
How is long-run equilibrium represented on an AD/AS graph?
The intersection of AD, SRAS, and LRAS curves.
What does a rightward shift of the AD curve indicate?
An increase in aggregate demand, potentially leading to demand-pull inflation.
What does a leftward shift of the SRAS curve indicate?
A decrease in short-run aggregate supply, potentially leading to cost-push inflation.
How does increased government spending affect the AD curve?
It shifts the AD curve to the right.
What happens to price level and output when SRAS shifts left?
Price level increases, and output decreases.
How to show the effect of increased government spending on the AD curve?
Shift the AD curve to the right, showing a new short-run equilibrium with a higher price level and a higher output.