Gpe Macroecon Review

* The four main agents in the macroeconomy are: * Households * Supply land, labor, and capital to business * Purchase consumer goods and services (C) * Save * Pay Taxes * Businesses * Use the factors supplied by the households to produce the nation’s output * Purchase investment goods (I) * Government * Purchase governments goods and services(G) * Collect taxes(T) * Foreigners * Purchase exports (EX) * Supply imports (IM)

* All income generated in the economy accrues to households since they supply all of the factor inputs.

* Intermediate goods are purchased by one business from another to use in production.

* Aggregate Demand is the curve with a negative slope.

* Aggregate Supply is the curve with the positive slope.

* The shape of the AS curve is designed to call attention to three regions of GDP: * The horizontal part shows that the economy is operating below full employment. Increase in production can be relatively easily achieved without causing shortages of inputs or increases in prices. * The middle part shows symbolizes the range of GDP where inputs begin to become scarce. * The vertical part shows the economy at full employment and no more output is possible until a new worker enters the labor force or new factories/machines are built. This is the absolute limit to production. * It is possible to exceed it for a short period of time, but only for this brief period.

* The Multiplier Effect is an increase in aggregate demand. For any given increase in spending that is not directly caused by an increase in come, the impact on equilibrium GDP is greater than the initial spending increase.

* Fiscal policy includes government taxation and expenditures * When governments increase spending, the increase ripples through the economy. * A decrease in taxes raises household income. * Cuts in taxes and spending are expansionary and the opposite is contractionary.

* Monetary policy covers the money supply and interest rates. * Open market operations are the most frequent technique used for changing the supply of money. * Selling bonds shrinks money supply, buying bonds expands it. * The interest rate can be considered similar to the price of money. * Expansionary monetary policy involves an increase in the money supply and a fall in interest rates, leading to a positive expansion in income. * Contractionary monetary policy is exactly the reverse.

* Fiscal and Monetary Policy during the Great Depression * July 1929 * Black Thursday on October 24th was when the market fell by more than 1/3 * By 1933 over 25% of the labor force was unemployed and real GDP had fallen by nearly 26%. * The first recession was from 1929 to 1933. The second began in 1937 and lasted into 1938. There was a strong recovery between the two, by 1936, where GDP reached the same place it had been in 1929. Last year of positive growth until 1934. * Roosevelt and Hoover worried about deficits rather than boosting business. * Between 1929 and 1933 the money supply fell by nearly 31%. * The Gold Standard required Central Banks to use interest rates and monetary policy to attract gold whenever gold reserves ran low.