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39 Cards in this Set
- Front
- Back
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What relationship does the Phillips curve show?
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The relationship between inflation and unemployment
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What type of relationship exists between theunemployment rate and inflation rate?
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An inverse relationship, as one goes up the other goes down
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Why is the short-runPhillips curve downward sloping? (Think in terms of AD and potential GDP)
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It slopes down because as unemployment increases, inflation decreases (ADshifts left)
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-What is the result of a low rate of unemployment,according to the Phillips curve? |
High Inflation |
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What is the natural rate of employment?
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The amount that occurs at potential GDP
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What happens to realwages if actual inflation is greater than expected inflation?
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The real wage decreases
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What happens toreal wages if actual price level is less than expected price level? |
The real wage increases |
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What is the result ofa high rate of unemployment, according to the Phillips curve? |
Low inflation |
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Is there a long run trade-off betweenunemployment and inflation? |
No |
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Does monetary policy have an impact on thelong-run Phillips curve? |
No |
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Use a Phillips curve to determine unemploymentrate, expected inflation rate and what will happen to unemployment if inflationfalls |
Remember that therelationship is inflation and unemployment and that they are inverse |
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What type of expectation about inflation topeople have if they expect inflation to follow the same pattern? |
Adaptive |
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What is an openeconomy? |
They encourage trade with other countriesme |
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Does the current account include US holdings offoreign assets? |
No, Net income |
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What would increase net exports? |
Having less imports orhaving more exports |
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What are the 3 accounts in the balance ofpayments? |
-Current -Financial -Capital(Usually ignored) |
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Under what accountdoes foreign aid fall? |
Net Transfers |
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What is a closedeconomy? |
Notrade outside of your country |
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What are thecomponents of the current account? |
Net income, net investments & nettransfers |
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Is the US a closed economy? |
No |
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What does it mean ifthe dollar has appreciated? |
The worth of the dollar increased |
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If there is a surplusof dollars what will likely happen in the foreign exchange market? |
Depreciate |
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What is a fixedexchange rate? |
Keeping rate fixed against another currency |
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What does the currentaccount balance equal in an open economy? |
Net Foreign Investment |
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What happens to thecomponents of AD when expansionary policy is implemented? |
It increases |
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Does monetary policy have a greater impact in anopen economy? |
Yes |
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What is a managedfloat rate? |
A rate that is determined by supply and demand withgovernment influence |
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What is a floatingexchange rate? |
Ratesdetermined strictly by supply and demand |
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What is the currencyadopted by many Western European countries? |
The Euro |
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What type of exchangerate does the US have? |
Managed Float |
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What is purchasingpower parity? |
Theexchange of rates would be equal |
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Why does purchasingpower parity not completely explain long-run fluctuations in exchange rates? |
Think of thereasons listed: trade, preferences, barriers, etc .... |
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What is a “pegged”rate? |
Fixed against the dollar |
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Do countries thathave free markets with little government regulation explain why purchasingpower parity fluctuates in the long-run? |
No, not everything is equally exchanged |
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Do all goods trade internationally? |
No |
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Do deficits affect acountry’s ability to invest? |
Yes…there won’t be any moneyavailable to invest |
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A factory built inanother country is what type of investment? |
Foreigndirect |
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Is the purchase of aCanadian bank stock by an American an example of foreign portfolio investment? |
Yes |
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Is the capitalaccount often ignored?
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Yes |
