econ exam 3
multiplier
1/(1-marginal propensity to consume)
social insurance tax
7.65% for the first 110,100 units
crowding out
A situation when increased interest rates lead to a reduction in private investment spending
complete crowding out.
AD moves back to its original position at AD1.
The government wants to use contractionary fiscal policy to correct the situation.
The AD moves left until the economy reaches equilibrium at the full-employment output level.
implementation lag
The time lag between when a macroeconomic shock or other adverse condition is recognized
when the production function has a positive slope there is...
a positive marginal product
marginal propensity to consume
a way of defining that the increase in personal consumer spending (consumption) occurs with an increase in disposable income
production shifts up
advances in technology and increases in labor productivity
when consumption spending rises
aggregate demand increases
The model used to study business cycles is the ________ model.
aggregate demand-aggregate supply
what causes long run economic growth low unemployment and stable inflation rate
an increase in aggregate demand and short-run aggregate supply
an increase in government spending and a decrease in taxes today will lead to
an increase in current savings
supply-side proposals
are never supported by because take a long time to shift the aggregate supply curve to the right.
laffer curve
as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*)
total government stimulus
calculated by multiplying government spending times the multiplier.
marginal product
change in gdp per unit of capital
developed countries are
closer to their steady state
helps growth
competitive markets, established property rights, efficient taxes
when real household wealth increases
consumption spending will rise
solow model suggest that developing nations should...
converge with developed nations because they can take advantage of technology created by developed nations
investors are likely to build where?
developing countries because they will have higher marginal productivity needs political stability
A rightward shift of the long-run aggregate supply curve means there has been
economic growth.
government spending
equals money borrowed
savings
equals new equilibrium
private investment
equals new equilibrium- loans
private consumption
equals new equilibrium- old equilibrium
long run aggregate supply shifts to the left when...
government spends more on unemployment, decrease in labor force, political instability
supply side policy
government subsidies for college education
An example of an institution that will decrease the expected payoff of investment is
high and variable inflation.
long run aggregate supply shifts to the right when...
increase in technology increase in resources
The wealth effect
increase in the price level, reducing the real value of wealth.
An increase in long-run aggregate supply can be expected to ________ the price level and ________ the natural rate of unemployment.
increase; have no effect on
when people save more
interest rate will fall
recognition lag
is the time lag between when an actual economic shock, such as sudden boom or bust occurs, and when it is recognized
When the price level rises and U.S. goods become relatively more expensive than foreign goods, there will be a
leftward shift of the aggregate demand curve.
automatic stabilizer
means that the policy goes into effect without requiring any government activity
shifts down
natural disasters, trade restrictions
calculate average debt growth
new debt minus old date divided by years
when price level goes down it does what to the short run aggregate supply
nothing
when price level goes up it does what to the short run aggregate supply
nothing
A restaurant's production function would show the relationship between the
number of workers hired and the number of meals served.
discretionary spending
optional spending
transfer payments
payments made with no direct payment in return
if price level falls
people will save more
demand side policy
per-person tax reduction
hinders growth
political instability, corruption, unexpected inflation
when price level falls
real household wealth increases
! An expansionary fiscal policy consists of the federal government
reducing taxes or increasing spending as a reaction to economic conditions.
both supply and demand policy
reduction in all tax rates, increasing unemployment compensation/benefits
when there is an increase in cost of meeting government regulations the short run aggregate supply
shift to the left
when The number of workers in the labor force increases the aggregate supply curve will
shift to the right
when firms and workers expect the price level to fall the aggregate supply
shifts to the right
when input decreases the short run aggregate supply curve
shifts to the right
what is the problem with people living longer
social security and medicare programs cost the government more
When real GDP increases
tax revenues increase and payments to individuals decrease.
what is the biggest factor that increases production
technology
An expansionary fiscal policy from a supply and demand perspective is represented by
the lowering of tax rates and either partially refunding previously paid taxes or increasing government spending.
because the slope of the production function becomes flatter the...
the marginal product of capital decreases
if price level decreases
the net exports will increase
when the net exports increases
the quantity of aggregate demand increases
impact lag
the time it takes for the impact of corrective action to be felt by the economy.
When aggregate demand is high enough to drive unemployment below the natural rate,
there is downward pressure on the price level, and the government may want to conduct expansionary fiscal policy.
when interest rates fall
there will be an increase in investment spending
When the government enters the market for loanable funds, the total level of saving
will increase.
When the government enters the market for loanable funds, private investment
will not be as high as before.
productivity function
y axis- gdp x axis- capital