All Flashcards
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.
Analyze an AD/AS graph showing the impact of expansionary fiscal policy.
The AD curve shifts to the right, increasing both price level and real GDP in the short run. In the long run, wages and prices adjust, potentially shifting the SRAS curve leftward.
Analyze an AD/AS graph showing the impact of contractionary monetary policy.
The AD curve shifts to the left, decreasing both price level and real GDP in the short run. This aims to reduce inflation.
Analyze a Phillips Curve graph showing the effect of a supply shock.
The SRPC shifts upward, indicating higher inflation for any given level of unemployment. The LRPC remains vertical at the natural rate of unemployment.
Analyze an AD/AS graph showing the economy operating below full employment.
The equilibrium is to the left of the LRAS curve, indicating a recessionary gap. There is potential for increased output without significant inflationary pressure.
Analyze an AD/AS graph showing the economy operating above full employment.
The equilibrium is to the right of the LRAS curve, indicating an inflationary gap. There is upward pressure on prices.
Analyze a graph showing the effect of increased government borrowing on the loanable funds market.
The demand for loanable funds increases, leading to a higher equilibrium interest rate.
Analyze a graph showing the impact of new technology on the PPC.
The PPC shifts outward, indicating an increase in potential output.
Analyze a graph showing the effect of increased investment in human capital on the LRAS.
The LRAS curve shifts to the right, indicating an increase in potential output due to a more productive workforce.
Analyze a graph showing the effect of a decrease in the money supply on aggregate demand.
The aggregate demand curve shifts to the left, decreasing both price level and real GDP in the short run.
Analyze a graph showing the effect of a tax increase on aggregate demand.
The aggregate demand curve shifts to the left, decreasing both price level and real GDP in the short run.
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.