Purdue Econ 252 Final Already Passed

There are three different schools of thought on the sources of economic fluctuations {Ans: 1) Real business theory 2) Keynesian theory 3) Financial and monetary theory}Business cycle {Ans: A cycle or series of cycles of economic expansion and contraction}Inflation (pi) {Ans: The gap between the rate of growth of the money supply minus the rate of growth of the real GDP Inflation represents the overall increase in the price of goods When the prices of goods are increasing, the same amount of money can buy less goods over time (currency is depreciating) Inflation increase = Currency depreciation}Quantitative easing {Ans: Occurs when the Fed buys long term bonds Simultaneously increases the supply of bank reserves and pushes the price of the long term bonds up, which lowers their interest rate Affects the interest rates for longer maturities When the FED increases the demand for long term bonds, all else constant, the price of the bonds increases thereby lowering the interest rate on the bonds In general these interest rates affect investment, mortgages and long term decisions}National income account identity / Net capital outflows {Ans: S (Exports) - I (imports) = net exports = net capital outflows}Expenditure