All Flashcards
What is the difference between a recession and a depression?
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A depression is a more severe and prolonged downturn.
What is the difference between expansionary and contractionary fiscal policy?
Expansionary fiscal policy increases government spending or decreases taxes to stimulate the economy, while contractionary fiscal policy decreases government spending or increases taxes to slow down the economy.
What is the difference between expansionary and contractionary monetary policy?
Expansionary monetary policy lowers interest rates to stimulate the economy, while contractionary monetary policy raises interest rates to slow down the economy.
What is the difference between GDP and real GDP?
GDP is the total value of goods and services produced, while real GDP is adjusted for inflation to reflect the actual volume of production.
What is the difference between cyclical and structural unemployment?
Cyclical unemployment is caused by fluctuations in the business cycle, while structural unemployment is caused by a mismatch between the skills of workers and the requirements of jobs.
What is the difference between demand-pull and cost-push inflation?
Demand-pull inflation is caused by an increase in aggregate demand, while cost-push inflation is caused by an increase in the costs of production.
What is the difference between nominal and real interest rates?
The nominal interest rate is the stated interest rate, while the real interest rate is adjusted for inflation.
What is the difference between leading and lagging economic indicators?
Leading indicators predict future economic activity, while lagging indicators reflect past economic activity.
What is the difference between fiscal and monetary policy?
Fiscal policy involves government spending and taxation, while monetary policy involves controlling the money supply and interest rates.
What is the difference between microeconomics and macroeconomics?
Microeconomics studies the behavior of individual consumers and firms, while macroeconomics studies the behavior of the economy as a whole.
What does a downward sloping line on a GDP graph indicate?
A downward sloping line indicates a contraction or recession in the economy.
What does an upward sloping line on an unemployment rate graph indicate?
An upward sloping line indicates increasing unemployment, often during a contraction.
What does a peak on a GDP graph represent?
A peak represents the highest level of economic output before a slowdown or recession.
What does a trough on an unemployment rate graph represent?
A trough represents the lowest level of unemployment before an expansion.
How do you identify a recession on a GDP graph?
A recession is identified by two consecutive quarters of negative GDP growth.
How does the growth trend line relate to actual GDP on a graph?
The growth trend line represents the ideal, sustainable growth rate, while actual GDP fluctuates around it.
What does a steep upward slope on a GDP graph indicate?
A steep upward slope indicates rapid economic growth during an expansion.
What does a steep downward slope on an unemployment graph indicate?
A steep downward slope indicates a rapid decrease in unemployment, usually during a strong expansion.
How can you identify an inflationary gap using a graph?
An inflationary gap is shown when actual output (GDP) is above the potential output (growth trend line).
What does the area between the growth trend line and the actual GDP line represent?
The area represents the output gap, which can be either inflationary (above the line) or recessionary (below the line).
How does government spending affect GDP during a recession?
Increased government spending can stimulate aggregate demand and increase GDP during a recession.
How do tax cuts affect consumer spending during a contraction?
Tax cuts can increase disposable income, leading to increased consumer spending during a contraction.
What is the impact of contractionary monetary policy on inflation?
Contractionary monetary policy (e.g., raising interest rates) can reduce inflation by decreasing aggregate demand.
How does expansionary monetary policy affect investment?
Expansionary monetary policy (e.g., lowering interest rates) can encourage investment by making borrowing cheaper.
What is the effect of unemployment benefits on aggregate demand during a recession?
Unemployment benefits help maintain aggregate demand by providing income to those who have lost their jobs.
How can fiscal policy be used to address an inflationary gap?
Fiscal policy can reduce government spending or increase taxes to decrease aggregate demand and close an inflationary gap.
How does monetary policy affect the exchange rate?
Higher interest rates (contractionary monetary policy) can increase the exchange rate, while lower interest rates (expansionary monetary policy) can decrease it.
What is the impact of supply-side policies on long-term economic growth?
Supply-side policies (e.g., tax cuts, deregulation) aim to increase long-term economic growth by increasing potential output.
How do automatic stabilizers affect the business cycle?
Automatic stabilizers (e.g., unemployment benefits, progressive taxation) help to smooth out the business cycle by automatically increasing spending during recessions and decreasing spending during expansions.
What are the potential drawbacks of using fiscal policy to stimulate the economy?
Potential drawbacks include time lags, crowding out of private investment, and increased government debt.