Econ Unit 3

the goal of expansionary fiscal policy is to increase

real GDP

The aggregate supply curve (short run)

slopes upward and to the right

The multiplier effect means that

an increase in investment can cause GDP to change by a larger amount

The shape of the short-run aggregate supply curve is

upsloping, because wages adjust more slowly than the price level, increasing profits and output

What is MPC formula

change in consumption divided by the change in income

the distinction between the absolute and relative sizes of the public debt is important because

the absolute size doesn't tell yo about an economy's capacity to repay the debt

The equilibrium price level and level of real output occur where

the aggregate demand and supply curves intersect

The long-run aggregate supply curve is vertical because the economy's potential output is determined by

the availability and productivity of real resources, not by the price level

The multiplier effect intensifies

the effect of a spending change, whether is is an increase or a decrease

Why does the aggregate demand curve slope downward

the interest-rate effect, the real-balances effect, the foreign purchases effect

The MPC for an economy is

the slope of the consumption schedule or line

The short-run aggregate supply curves is relatively flat to the left of the full-employment output because

there are large amounts of unused capacity and idle human resources

If the MPS rises, the the MPC will

fall

APC + APS =

1

What will shift the aggregate demand curve to the left

Interest rates rise, the gov reduces personal income taxes

examples of what shifts aggregate supply curve

a decline in the price of imported oil, decline in business taxes, increase in labor productivity

for a person who wants to preserve the size of government, the fiscal options for ending severe demand-pull inflation would include

an increase in taxes

an internally held debt is one in which the

bondholders live in the nation having the debt

expansionary fiscal policy during a recession means

cutting taxes, increasing government spending, or taking both actions

discretionary fiscal policy will stabilize the economy most when

deficits are incurred during recessions and surpluses during inflations

a reduction in the real interest rate will increase investment spending, other things equal, because firms will make an investment purchase if the expected return is

greater than or equal to the real interest rate at which it can borrow

discretionary fiscal policy refers to

intentional changes in taxes and government expenditures made by congress to stabilize the economy

what are the two ways to measure the public debt

its absolute dollar size and its relative size as a percentage of GDP

refinancing the public debt means

selling new bonds to retire maturing bonds

The aggregate demand curve

shows the amount of real output that will be purchased at each possible price level

The multiplier

causes an initial change in spending to generate an even larger change in the aggregate demand curve

what type of tax system would have the most built-in stability

a progressive tax because it increases at an increasing rate as income rise, thus having more of a dampening effect on rising or falling incomes

if the gov implements a tax rebate program, effectively cutting taxes for households, it would increase _________

aggregate demand

the sum of the MPC and the MPS must equal 1 because

all additional income must be spent or saved

the economy starts out with a balanced federal budget. If the government then implements expansionary fiscal policy, then there will be a

budget deficit

The MPC can be defined as that fraction of a

change in income that is spent

a change in _____ will not cause the consumption schedule to shift

consumer incomes

fiscal policy refers to

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level

The aggregate demand curve is

downsloping, because of the interest-rate, real-balances, and foreign purchases effects

The Council of economic advisors (CEA) advises the president on

economic matters and provides recommendations for discretionary fiscal policy action

when the federal government uses taxation and spending actions to stimulate the economy, it is conductiong

fiscal policy

The multiplayer is ________ the larger the MPC is and ________ the smaller the MPC is

larger the larger the MPC is and smaller the smaller the MPC is

a contra dictionary fiscal policy is shown as a

leftward shift in the economy's aggregate demand curve

paying off an externally held debt

may lower the dollar exchange rate

Other things equal, a decrease in the real interest rate will

move the economy downward along its existing investment demanding curve

paying off an internally held debt would

not burden the economy as a whole

what would help government reduce an inflationary output gap

raising taxes, decreasing government spending

The governments fiscal policy options for ending severe demand-pull inflation include

reducing government spending, increasing taxes, or both

An increase in net exports will shift the AD curve to the

right by a multiple of the change in net exports

Graphically, demand-pull inflation is shown as a

rightward shift of the AD curve along with an upsloping AS curve

At the point where the consumption schedule intersects the 45-degree line, saving =?

saving is zero

If the annual interest payments on the debt sharply increased as a percentage of GDP, the government would have to use

tax revenues or go deeper into debt

built-in (or automatic) stabilizers work by changing _______ so that changes in GDP are reduced

taxes and government payouts

dissaving means

that households are spending more than their current incomes

What is APC formula

total consumption divided by total income