All Flashcards
What is the impact of increased government spending on GDP?
Generally increases GDP, especially during a recession, by boosting aggregate demand.
What is the impact of lower interest rates on investment spending?
Encourages investment spending, as borrowing becomes cheaper.
How does a tax cut affect consumer spending?
Tends to increase consumer spending by increasing disposable income.
What is the impact of trade tariffs on net exports?
Can decrease net exports if other countries retaliate with their own tariffs.
How does expansionary monetary policy affect inflation?
Can lead to higher inflation if the money supply grows too quickly.
How does increased regulation affect business investment?
Can decrease business investment due to increased costs and compliance burdens.
What is the effect of subsidies on domestic industries?
Subsidies can help domestic industries compete in global markets but may also lead to inefficiencies.
How does a minimum wage increase affect unemployment?
May lead to increased unemployment if businesses reduce staff to offset higher labor costs.
What is the impact of quantitative easing on the money supply?
Increases the money supply by injecting liquidity into financial markets.
How do unemployment benefits affect the labor force participation rate?
May decrease the labor force participation rate if they reduce the incentive to seek employment.
How does an increase in consumer spending affect GDP?
Increases GDP because 'C' (consumer spending) is a component of the GDP calculation (C + I + G + Nx).
How does a recession affect cyclical unemployment?
Increases cyclical unemployment because businesses lay off workers due to decreased demand.
How does automation affect structural unemployment?
Increases structural unemployment by creating a mismatch between workers' skills and available jobs.
If a country exports more than it imports, how does this affect its GDP?
Increases GDP because net exports (Nx) are positive, contributing to the overall GDP calculation.
How does inflation affect the purchasing power of consumers?
Decreases purchasing power because each dollar buys fewer goods and services.
How does increased government spending impact the economy during a recession?
Increased government spending can stimulate demand and help the economy recover from a recession.
How does a rise in oil prices affect the CPI?
It increases the CPI because transportation costs and the prices of related goods and services rise.
How does a surge in housing construction affect GDP?
Increases GDP because investment spending ('I') includes residential construction.
If many workers quit their jobs to seek better opportunities, what type of unemployment increases?
Frictional unemployment increases as more people are temporarily between jobs.
How does increased investment in education and training affect structural unemployment?
It can reduce structural unemployment by better aligning workers' skills with employer needs.
What is GDP?
Total value of all goods/services produced within a country's borders in a specific time period.
What is Nominal GDP?
GDP measured in current prices; doesn’t adjust for inflation.
What is Real GDP?
GDP adjusted for inflation; gives a more accurate picture of economic growth.
What is Inflation?
General increase in prices over time.
What is the CPI?
Consumer Price Index; tracks the price of a “basket” of goods and services.
What is the labor force?
All people who are employed or actively seeking employment.
Define frictional unemployment.
Temporary unemployment when people are between jobs or entering the labor force.
Define structural unemployment.
Unemployment due to a mismatch between workers' skills and employers' needs.
Define cyclical unemployment.
Unemployment caused by a downturn in the business cycle (recession).
What is the Circular Flow Model?
A simplified representation of the economy, showing the flow of money and resources between households and firms.