All Flashcards
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.
Analyze a graph showing a rightward shift of the SRAS curve.
A rightward shift indicates an increase in aggregate supply, potentially due to lower production costs or improved technology, leading to lower price levels and higher output.
Analyze a graph showing a rightward shift of the LRAS curve.
A rightward shift indicates an increase in the economy's potential output, potentially due to increased resources, improved technology, or increased human capital, leading to long-term economic growth.
Analyze a graph showing a rightward shift of the AD curve.
A rightward shift indicates an increase in aggregate demand, potentially due to increased government spending or consumer confidence, leading to higher price levels and higher output.
Explain how a simultaneous rightward shift of both AD and AS curves affects the equilibrium price level and output.
Output will increase. The effect on the price level is indeterminate without knowing the relative magnitudes of the shifts.
Explain how a rightward shift of the AS curve can lead to a decrease in the price level and an increase in real GDP.
An increase in aggregate supply puts downward pressure on prices as firms are able to produce more goods and services at lower costs, leading to higher output and lower inflation.
Explain how an increase in government spending on infrastructure can lead to a rightward shift of the AD curve.
Increased government spending injects more money into the economy, boosting demand for goods and services and shifting the AD curve to the right.
Analyze how a decrease in business taxes can shift the SRAS curve.
A decrease in business taxes reduces production costs, leading to an increase in aggregate supply and a rightward shift of the SRAS curve.
Analyze how an investment tax credit can shift the AS curve.
An investment tax credit encourages businesses to invest more, leading to increased productivity and a rightward shift of the AS curve.
Analyze how an increase in government spending on education can shift the LRAS curve.
Increased investment in education improves the quality of the labor force, leading to higher productivity and a rightward shift of the LRAS curve.
Analyze how a decrease in regulations can shift the AS curve.
A decrease in regulations reduces the costs of doing business, leading to an increase in aggregate supply and a rightward shift of the AS curve.
What is the impact of cutting taxes on businesses on aggregate supply?
It increases aggregate supply by reducing production costs and incentivizing investment.
What is the impact of deregulation on economic growth?
It can stimulate economic growth by reducing barriers to entry and fostering competition.
What is the impact of increased government spending on infrastructure on AD?
It increases aggregate demand by injecting money into the economy and boosting spending.
What is the impact of increased government spending on education on long-term productivity?
It leads to a more skilled workforce and increased long-term productivity.
Evaluate the effectiveness of supply-side policies in addressing a recession.
Supply-side policies may take longer to impact the economy than demand-side policies, but they can lead to sustainable long-term growth without causing high inflation.
Evaluate the potential drawbacks of supply-side policies.
They may exacerbate income inequality and require significant time to produce noticeable effects.
What is the impact of increased government spending on unemployment benefits on economic growth?
It can reduce the incentive to work, potentially decreasing labor supply and hindering economic growth.
What is the impact of increasing the minimum wage on employment?
It may lead to job losses, particularly among low-skilled workers, as businesses reduce employment to offset higher labor costs.
What is the impact of implementing price ceilings on market efficiency?
Price ceilings can lead to shortages, black markets, and reduced market efficiency as they distort the natural forces of supply and demand.
What is the impact of increasing the money supply on inflation?
Increasing the money supply can lead to inflation if it grows faster than the economy's output, as there is more money chasing the same amount of goods and services.
What is the impact of policies that promote innovation on long-term economic growth?
Policies that promote innovation encourage the development of new technologies and processes, leading to increased productivity, higher living standards, and long-term economic growth.