Economics: Unit 5

identify 3 public policies that promote economic growth

- increase in education spending - increase in infrastructure spending - policies that spur innovation

how does monetary policy affect a negative output gap

- reserve ratio decreases - dr decreases -buy bonds - AD increases

how does monetary policy affect a positive output gap

- reserve ratio increases - dr increases -sell bonds - AD decreases

identify 3 things that influence productivity

- technology - amount of physical capital - amount of human capital

how does no policy affect a negative output gap

- wages decrease -SRAS increases

how does no policy affect a positive output gap

- wages increase -SRAS decreases

how does fiscal policy affect a positive output gap

-government spending decreases -tax burden increases - AD decreases

how does fiscal policy affect a negative output gap

-government spending increases -tax burden decreases - AD increases

Assume the money supply is $40 and it's used to purchase 10 products with a price of $20 each. Calculate the velocity of money?

5 ; (40)V= 20 x 10 ; 40V=200; V=5

explain the difference between budget deficit and the national debt

A budget deficit is the amount the government overspends in one year. The national debt is the accumulation of deficits over multiple years

When the economy is at full employment, why will an increase in the money supply have no effect on real output in the long run?

An increase in the money supply doesn't change the amount of physical capital in the economy or the real output that can be produced

An increase in consumer spending leads to more economic growth in the long-run

False

When long-run aggregate supply shifts right the natural rate of unemployment increases

False

how does the existence of a large national debt effect government spending in the future

Future spending falls. A government must pay interest on its accumulated debt. This means that the government will not have those funds for alternative uses

use the example to define crowding out

Government deficit spending increases real interest rates and decreases interest-sensitive private sector investment and consumer spending

what is the equation for the quantity theory of money

M x V = P x Y

What action could the central bank take to limit inflation caused by expansionary fiscal policy? Explain

The central bank could sell bonds. This will decrease the money supply, increase interest rates, and limit excessive spending and inflation

A sustained increase in productivity causes both the long run aggregate supply curve and production possibilities curve to shift right

True

The aggregate production function shows that output per capita is positively related to both physical and human capital per capita

True

What shifts the LRPC?

anything that changes the natural rate of unemployment

crowding out _______ physical capital accumulation and _________ the rate of growth

decreases; decreases

define supply side fiscal policies

laws designed to increase output by shifting SRAS and LRAS by lowering taxes for businesses

Define the velocity of money.

the average times a dollar is spent and re-spent in a specific period of time

what is a government budget deficit

when tax revenues are less than government purchases plus transfer payments in a given year

what is government budget surplus

when tax revenues are more than government purchases plus transfer payments in a given year