macro flashcards 2

Assume the economy is at full employment and that investment spending declinesdramatically. If the goal is to restore full employment, government fiscal policy shouldbe directed toward

an excess of government expenditures over tax receipts.

if money is neutral, then changes in the quantity of money

do not affect real output

decline in national output, drop in personal income. increase in unemployment. caused by a loss in confidence that slows demand.

economic contraction

The determinants of aggregate demand

explain shifts in the aggregate demand curve

permanent tax cuts shift the AD curve

farther to the right than do temporary tax cuts

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

fiscal policy

examples of increase in output in the short run

increase in stock prices, gov spending increases, firms purchase more investment goods

suppose a stock market boom makes people feel wealthier. the increase in wealth would cause people to desire

increased consumption, which shifts the aggregate demand curve right

An economist who favored expanded government would recommend

increases in government spending during recession and tax increases duringinflation.

a decrease in the money supply will cause what

interest rates increase, quantity of goods and services decrease

if interest rates have fallen to zero

liquidity trap

supplies of labor capital, and natural resources, available technology, increase in labor and capital and natural resources are all determinants of what

long run Aggregate demand

result when expansionary fiscal policy increases income and consumer spending

multiplier effect

decline in GDP, higher unemployment, and higher inflation all are caused by what

oil shock affecting economy

the aggregate quantity of goods and services demanded changes as the price level falls because

real wealth rises, interest rates fall, and the dollar depreciates

decline in GDP, not easy to predict, increases unemploymenbt

recession

In 2015, the U.S. federal debt held by the public was

75 percent of the size of GDP

an increase in consumption causes what

aggregate demand curve to shift to the right

Which of the following represents the most contractionary fiscal policy

a $30 billion decrease in government spending

according to the classical model, what would double if the quantity of money doubled?

both prices and nominal income

The U.S. public debt

consists of the historical accumulation of all past federal deficits and surpluses.

government borrowing to finance the public debt increases the real interest rateand reduces private investment.

crowding out effect

contracting aggregate demand will

decrease money supply and increase interest rates

In 2015, the U.S. federal debt held by the public was

reducing the current level of investment.

tax cut shift aggregate demand

right as do increases in government spending

A specific reduction in government spending will dampen demand-pull inflation by agreater amount the

smaller is the economy's MPS

a tax cut shifts the aggregate demand curve the farthest if,

the MpC is large and the tax cut is permanent

what are the most important aggregate demand factors for the U.S. economy

wealth effect-most important exchange rate effect-not large Interest rate exchange-most important

the downward slope affects what

wealth, exchange rate, and interest rate