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Lecture 10

ECON-1006EL Lecture 10: Mirco Relation to Macro Final Review

Economics / Science Èconomique
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Macro Final Questions
Chapter 19: 1
Chapter 20: 2
Chapter 21: 3
Chapter 22: 4
Chapter 23: 5
Chapter 24: 6
Chapter 25: 7
Chapter 26: 8-14
Chapter 27: 15-21
Chapter 28: 22-24
Chapter 29: 25-31
Chapter 30: 32-37
Chapter 31: 38-44
Chapter 32: 45-50
1. What is national income?
The amount of output through different goods and services produced. (p. 443)
2. What are intermediate products?
All outputs that are used as inputs by other producers in a further stage of
production. (p. 465)
3. How would you interpret the points on the 45%-line diagram?
Equilibriums based on the shifting of the AE function.
4. How do changes in government expenditure effect the AE function?
Increased government expenditure = upwards shift in AE function.
Decreased government expenditure = downwards shift in the AE function. (p.
5. Given AD/AS curves, when will government expenditure have an effect on
national income?
Government can increase expenditure to shift the AD curve up and to the right
to close a recessionary gap. (p. 545)
6. What is an output gap?
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Inflationary gap: Y > Y*
Recessionary gap: Y < Y* (p.556)
7. Over the long run, what changes real GDP?
An increase in the equilibrium amount of investment (and saving) implies a
greater growth rate of the capital stock and thus a higher future growth rate of
potential output. Growth in the labour force, human capital, physical capital,
and technological improvements will also be sources of economic growth.
8. What do changes in the price level do to the value of money?
As the price level increases, the purchasing power of money decreases. (p.616)
9. What are the 3 functions of money?
a) Medium of Exchange: Anything that is generally accepted in return for goods
and services sold. This replaces the need for barter.
b) A Store of Value: Money can be a means for storing purchasing power and
saved until it is needed for future purchases.
c) A Unit of Account: Money is used for accounting to record expenditures,
receipts, deficits, and surpluses. (p. 616-617)
10.What is Gresham’s law?
Gresham’s Law is the theory that “bad” or debased money drives “good” or
undebased money out of circulation. (p. 619)
When two types of money are used side by side, the one with the greater
intrinsic value will be driven out of circulation (p. 620)
11.If you find $100 bill in your grandmother’s mattress, given figures of reserve
ratios for banks (target rr), how much money is created?
Say reserve ratio is 0.20 or 20%, The bank would end up with an extra $20
created. (p. 631)
12.Same as above
Calculate another example given different numbers.
13.Similar to 11 and 12. How much money is created by the banking system? Not
just the individual bank. 1 bank could make $100, banking system could make
$500 if rr is 20%.
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