All Flashcards
What are the key differences between supply-side and demand-side policies?
Supply-side policies focus on shifting the AS curve, while demand-side policies focus on shifting the AD curve. Supply-side aims to boost production, while demand-side aims to boost spending.
Compare the short-run and long-run effects of supply-side policies.
In the short run, supply-side policies may have a limited impact, but in the long run, they can lead to sustainable economic growth and increased productivity.
Compare fiscal and monetary policy.
Fiscal policy involves government spending and taxation, while monetary policy involves managing the money supply and interest rates.
Compare the effects of a decrease in income taxes versus an investment tax credit on aggregate demand.
A decrease in income taxes directly increases disposable income and consumer spending, while an investment tax credit encourages business investment and capital formation.
Compare the effects of government spending on infrastructure versus government spending on education on long-term economic growth.
Infrastructure spending improves the physical foundations for economic activity, while education spending enhances human capital and labor productivity.
Compare the effects of lower taxes on businesses versus lower taxes on individuals.
Lower taxes on businesses encourage investment and production, while lower taxes on individuals increase disposable income and consumer spending.
Compare the effects of supply-side policies on inflation versus unemployment.
Supply-side policies can reduce both inflation and unemployment by increasing aggregate supply and productivity, leading to lower prices and more job opportunities.
Compare the effects of government subsidies versus tax credits on business investment.
Government subsidies directly reduce the cost of production, while tax credits reduce the after-tax cost of investment.
Compare the effects of government regulation versus deregulation on market efficiency.
Government regulation can correct market failures but may also increase costs and reduce efficiency, while deregulation can increase competition and efficiency but may also lead to market failures.
Compare the effects of short-term fiscal stimulus versus long-term structural reforms on economic growth.
Short-term fiscal stimulus can provide immediate relief during a recession, while long-term structural reforms aim to improve the economy's underlying fundamentals and potential growth rate.
How does increased government spending on education affect long-run economic growth?
It improves the quality of labor, leading to higher productivity and increased output, shifting LRAS to the right.
How does government investment in infrastructure contribute to long-run real GDP growth?
It boosts overall spending, reduces transportation costs, and improves business efficiency, leading to increased productivity and output.
How do patents promote innovation and long-run economic growth?
Patents protect intellectual property, giving companies more incentive to innovate and create, thus increasing real GDP in the long run.
How does increasing employment lead to higher productivity and economic growth?
More workers contribute to increased output, leading to higher overall production and economic growth.
How do lower taxes for businesses affect the supply of loanable funds?
Lower taxes mean businesses have more money to invest, increasing the supply of loanable funds.
How do lower interest rates impact investment?
Lower interest rates make borrowing cheaper, leading to more investment by businesses and individuals.
How does an investment tax credit encourage economic growth?
It reduces a firm's taxes if it invests, encouraging more investment and growth.
How do lower taxes affect household spending and firm profits?
Lower taxes mean more income for households, leading to more spending and increased profits for firms.
How do productivity incentives boost demand?
Lower taxes incentivize people to work harder, leading to increased employment and less government dependence.
How does lower taxes affect risk-taking and investment?
With lower taxes, the expected income from investing increases, encouraging more risk-taking and investment.
Explain how improvements to roads and bridges can increase economic growth.
Better infrastructure reduces transportation costs for businesses, increases efficiency, and facilitates trade, leading to higher productivity and economic growth.
Explain how government funding for research and development (R&D) can lead to economic growth.
Government funding for R&D encourages innovation and technological advancements, leading to new products, processes, and industries, which boost productivity and economic growth.
Define Public Policy.
Government actions designed to influence the economy.
Define Economic Growth.
An increase in the amount of goods and services produced per head of the population over a period of time.
Define Real GDP per capita.
A measure of a country's economic output that accounts for the effects of inflation and the number of people in the country.
Define Human Capital.
The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.
Define Infrastructure.
The basic physical and organizational structures and facilities (e.g., buildings, roads, power supplies) needed for the operation of a society or enterprise.
Define Innovation.
The introduction of something new; a new idea, method, or device.
Define Supply-Side Economics.
An economic theory that advocates reducing taxes and deregulation to increase production and stimulate economic growth.
Define Short-Run Aggregate Supply (SRAS).
The total quantity of goods and services firms are willing and able to supply at different price levels in the short run.
Define Long-Run Aggregate Supply (LRAS).
The total quantity of goods and services firms are willing and able to supply at different price levels in the long run.
Define Demand-Side Policies.
Government policies that focus on shifting the Aggregate Demand (AD) curve to influence economic activity.
Define Aggregate Demand (AD).
The total demand for final goods and services in an economy at a given time.
Define Investment Tax Credit.
A tax incentive that allows businesses to deduct a percentage of the cost of new investments from their taxes.
Define Productivity.
The effectiveness of productive effort, especially in industry, as measured in terms of the rate of output per unit of input.