Principles of Macroeconomics — Core flashcards
10 of 72 cards free to study here · 14 topics · the whole deck is built into Willys
A full college principles of macroeconomics course: GDP measurement, growth models, unemployment, inflation, trade balances, AD–AS, Keynesian and neoclassical views, money creation and the multiplier debate, monetary policy, exchange rates, budgets and debt.
Learn deck · part of Principles of Economics (Micro and Macro) · written against: Standard two-course principles sequence; OpenStax Principles of Economics 3e, consulted as a reference; no text copied. Updated 2026-10-10.
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A parent quits a paid job to care for their own child full-time. What happens to measured GDP, and why is that a limitation?Measured GDP falls: the lost wages and any paid childcare disappear, yet childcare is still being produced. GDP leaves out household production because no market transaction takes place.Measuring the Macroeconomy
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What does an aggregate production function say determines output per worker?Output per worker (labor productivity) depends on physical capital per worker, human capital per worker and technology, the know-how that turns inputs into output.Economic Growth
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Why does the consumer price index tend to overstate inflation when product quality improves?A new phone may cost more but do far more. If some of the price rise reflects better quality, counting it all as inflation overstates the true rise in the cost of living. New goods enter the index slowly, adding to the bias.Inflation
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Does a large trade deficit show that an economy is weak?Not necessarily. A booming economy often buys more imports and attracts foreign investment, so trade deficits can grow in good times and shrink in recessions.Trade Balances and Capital Flows
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In the Keynesian cross diagram, what does the 45-degree line show, and where is equilibrium?The 45-degree line marks every point where aggregate expenditure equals national output. Equilibrium is where the expenditure line crosses it.The Keynesian Perspective
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Why do neoclassical economists expect recessions to fade on their own fairly quickly?They assume wages and prices are flexible over time, so the economy returns to potential GDP set by long-run aggregate supply. Policy should therefore focus on long-run growth and low inflation.The Neoclassical Perspective
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What is the US Federal Reserve's dual mandate?By law, the Fed pursues maximum employment and stable prices; the law also mentions moderate long-term interest rates.Monetary Policy
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A burger costs 4 dollars in the United States and 600 yen in Japan. What exchange rate does purchasing power parity imply?600 ÷ 4 = 150 yen per dollar. If the market rate is far from that, PPP suggests one currency is overvalued — though nontraded costs such as rent keep PPP from holding exactly.Exchange Rates
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What is Ricardian equivalence?The idea that households see a deficit as future taxes and save more to pay them, so a debt-financed tax cut leaves total spending unchanged. Evidence suggests the offset is partial at best.Government Borrowing
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Why do governments that finance deficits by printing money tend to end up with high inflation?Creating money to pay for spending — seigniorage — raises the money supply faster than output. The resulting inflation acts as an inflation tax on anyone holding cash.Macroeconomic Policy Around the World
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About these cards
Review status: Second-reader reviewed, with corrections applied.
Checked against:
- OpenStax Principles of Economics 3e, consulted as a reference; no text copied.
- Business-cycle, monetary-policy and money-stock facts also checked against NBER's business-cycle dating pages, the Federal Reserve Board's pages and H.6 money stock data, and 12 U.S.C. 225a (reference only; no text copied).
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