All Flashcards
What is Expansionary Fiscal Policy?
Increased government spending or tax cuts to stimulate economic growth.
What is Contractionary Fiscal Policy?
Decreased government spending or tax increases to slow down economic growth.
What is Expansionary Monetary Policy?
Lowering interest rates or increasing the money supply to stimulate economic growth.
What is Contractionary Monetary Policy?
Raising interest rates or decreasing the money supply to slow down economic growth.
What is the Phillips Curve?
A curve showing the relationship between inflation and unemployment.
What is the Short-Run Phillips Curve (SRPC)?
A downward sloping curve showing the inverse relationship between inflation and unemployment in the short run.
What is the Long-Run Phillips Curve (LRPC)?
A vertical line at the natural rate of unemployment, showing no trade-off between inflation and unemployment in the long run.
What is the Velocity of Money?
How many times a dollar is spent in a year; how often money circulates in the economy.
What is a Budget Deficit?
When the government spends more than it collects in taxes in a given year.
What is the National Debt?
The total accumulation of past budget deficits.
What is Crowding Out?
When government borrowing increases interest rates, reducing private investment and consumption.
What is the impact of increased government spending on aggregate demand?
It directly increases aggregate demand, leading to higher output and potentially higher prices.
What is the impact of lower interest rates on investment?
Lower interest rates make borrowing cheaper, encouraging businesses to invest more.
What is the impact of a tax cut on consumer spending?
A tax cut increases disposable income, leading to higher consumer spending.
What is the impact of contractionary monetary policy on inflation?
It reduces aggregate demand, helping to cool down the economy and lower inflation.
What is the impact of investing in infrastructure on long-term economic growth?
Improved infrastructure increases productivity and efficiency, leading to higher potential output.
What is the impact of reducing the national debt on future generations?
Lowering the national debt reduces the burden of interest payments on future taxpayers.
What is the impact of increased regulation on business investment?
Increased regulation can increase the cost of doing business, potentially decreasing business investment.
What is the impact of increased government spending on interest rates?
It can increase demand for loanable funds, potentially leading to higher interest rates and crowding out.
What is the impact of increased investment in research and development on economic growth?
It can lead to new technologies and innovations, increasing productivity and shifting the LRAS curve to the right.
What is the impact of supply-side fiscal policies on aggregate supply?
They aim to increase aggregate supply by incentivizing production and investment, often through tax cuts or deregulation.
How does expansionary monetary policy apply during a recession?
Lowering interest rates encourages borrowing and spending, shifting AD to the right and stimulating economic activity.
How does contractionary fiscal policy apply during high inflation?
Decreased government spending or higher taxes reduce aggregate demand, helping to cool down the economy and lower inflation.
How does the Phillips Curve relate to monetary policy decisions?
Central banks consider the trade-off between inflation and unemployment when setting interest rates, aiming for a stable economy.
How does increased government borrowing lead to crowding out?
Increased demand for loanable funds raises interest rates, making it more expensive for businesses to invest and consumers to borrow.
How do investments in education promote economic growth?
A more educated workforce is more productive, leading to higher output and a shift of the LRAS curve to the right.
How does a tax cut for businesses potentially lead to economic growth?
Businesses may invest more, increasing output and shifting the LRAS curve to the right. This is a supply-side fiscal policy.
How does increased labor force participation affect the PPC?
It shifts the PPC outward, indicating the economy can produce more goods and services with the increased labor supply.
How does new technology affect the LRAS curve?
New technology increases productivity, shifting the LRAS curve to the right and allowing for greater output at any given price level.
How can fiscal stimulus be used to address an economy operating below full employment?
Increased government spending or tax cuts can increase aggregate demand, moving the economy towards full employment.
How does the quantity theory of money explain inflation?
If the money supply grows faster than real output, the price level will increase, leading to inflation (MV=PQ).