Flashcards
Chp 13 and 16
Flashcards do conjunto (55)
- 1The Quantity of Real GDP suppliedIs the amount of final goods and services that firms plan to produce
- 2What does Real GDP supplied rely onThe four factors of production
1. Labor Employed
2. Capital, Human Capital and state of technology
3. Land and Natural Resources
4. Entrepreneurial Talent - 3What happens at full employmentThe real wage rate makes supply and demand of labor at equilibrium. Over the business cycle the quantity of labor supplied fluctuates and so does the real GDP around the Pot GDP
- 4Aggregate SupplyIs the relationship between the quantity of Real GDP supplied and the price level when all other influences remain the same
(How much GDP firms are going to make) - 5What effects the Quantity supplied of Aggregate Supply1. Price Level
- 6Price Level (Change in Quantity Supplied of Aggregate Supply)When the price level rises the real wage rate remains the same so it means labor is cheaper and production increases causing a increase in Quantity supplied of Aggregate Supply. V.V.
- 7What 3 things changes aggregate supply1. Potential GDP
2. Money Wage Rate Change
3. The Money Prices of other resources change - 8Potential GDP (Change in Supply of AS)Anything that changes the Potential GDP changes the aggregate supply. When it moves left the supply increases and V.V.
- 9Change In Money Wage Rate (Change of Supply for AS)When the money wage rate changes the cost of firms change. When the wage rate goes higher the cost rises and the less Real GDP will be supplied. V.V.
- 10Change in Money Prices of Other Resources. (Change of supply of AS)A change in price of resources affects the cost of the firms. When it rises costs rise and firms make less Real GDP lowering the AS. V.V.
- 11The Quantity of Real GDP demandedIs the total amount of final goods and services produced in the United States that people, businesses, governments, and foreigners plan to buy.
( How much Real GDP households, governments and firms plan to buy) - 12Aggregate DemandIs the relationship between the quantity of real GDP demanded and the price level when all other influences on expenditure plans remain the same.
- 13What are the four things that change the quantity demanded of AD1. Price Level
2. Buying Power of Money
3. Real Interest Rates
4. Real Prices of Exports and Imports - 14Price Level (Quantity demanded of AD)When price level falls the amount demanded increases and V.V.
- 15The Buying Power of Money (Quantity demanded of AD)A rise in price level decreases buying power of money. Because things are more expensive people will save more and Quantity of Real GDP will decrease.
- 16Real Interest Rates (Quantity demanded of AD)When price level rises the real interest rate rises. An increase in price level makes people need more money to get stuff so the demand for money increases and the interest rate rises
- 17The Real Prices of Exports and Imports (Quantity demanded of AD)When the price level rises the goods of a country increases so people will by foreign goods and the quantity of real GDP demanded is less.
- 18Aggregate DemandWhen the aggregate demand increases it moves right horizontally on the graph
- 19What are the three factors that change Aggregate Demand1. Expectations of the Future
2. Fiscal Policy and Monetary Policy
3. The State of the World Economy - 20Expectations (Demand of AD)Increases
1. Inflation: People will buy more before inflation happens. V.V
2. Income: People will buy more because they can afford it V.V.
3. Future Profit: Firms will invest more because they have the money V.V. - 21Fiscal Policy and Monetary Policy (Demand of AD)Governments use Fiscal Policy to create a tax cuts or increases gov. expenditure to promote demand of AD. V.V. Federal Reserve uses Monetary Policy to cut interest rates or quantity of money to increase demand of AD. V.V.
- 22Fiscal PolicyIs the changing of taxes and transfer payments and government expenditures on goods and services. (What government uses it money on budget)
- 23Monetary PolicyIs the changing the quantity of money and interest rate
- 24World Economy (Demand of AD)Foreign Exchange Rate and Foreign Income. When the dollar loses power foreign rates change and people will buy more because it's cheaper. V.V. When Foreign Income Increases more people will buy. V.V.
- 25The Aggregate Demand MultiplierIs an effect that magnifies changes in expenditure plans and brings potentially large fluctuations in aggregate demand
(It makes the changes bigger. This affects the amount people buy and brings fluctuations) - 26How does the Aggregate Demand Multiplier workThe increase in aggregate demand begins with the increase of expenditure and then add the effect of the consumption expenditure. The change in expenditure causes a change in income. Because income is changed the consumption expenditure changes.
- 27Macroeconomic EquilibriumOccurs when the quantity of Real GDP Demanded equals the quantity of Real GDP Supplied
- 28The Macroeconomic Equlibrium fluctuates around full employment (Pot GDP) What are the Equilibriums called.1. Full Employment Equilibrium
2. Recessionary Gap
3. Inflationary Gap - 29Full Employment EqulibriumWhen equilibrium real GDP equals potential GDP
- 30Recessionary GapWhen employment is below the Pot. GDP and brings falling price levels
- 31Inflationary GapWhen the employment is above the Pot GDP and brings rising price levels
- 32Economic Growth and Inflation explained on ASAD graphIncreases in labor productivity and labor force increase Pot. GDP. Increase in Pot GDP is economic growth. Inflation is when aggregate demand rises quicker than the pot. GDP can.
- 33Real Business CycleAggregate supply fluctuates because labor productivity grows at a variable pace, which brings fluctuations in the growth rate of potential GDP.The swings in aggregate demand occur more quickly than changes in the aggregate supply.
- 34Demand-Pull inflationWhen aggregate demand is increased but the quantity of money does not increase
- 35Cost-push inflationAn inflation that starts because aggregate supply. Quantity of money doesn't grow enough
- 36Fiscal PolicyIs the use of the federal budget to achieve the macroeconomic objectives of high and sustained economic growth and full emplyment
- 37Fiscal YearBegins on Oct. 1 and Prez. and Congress make budget
- 38National DebtNational Debt is the sum of every year's deficit. Gov has to be in a deficit so that it can have a National debt. (National Budget Debt= Tax revenues - Outlays)
- 39Where do Tax Revenues come fromIncome Tax, Social Security Tax, Corporate Tax, and Indirect Taxes. (Sale Taxes)
- 40Transfer PaymentsThis is the biggest outlay (Expense) of the government and is social security benefits, medicaid, unemployment etc. Other expenditures include defense and debt interest
- 41What is happening with the Social Security departmentBaby boomers are receiving benefits and the debt is overwhelming and the U.S. can't afford it. We need to raise taxes, social security taxes, cut social security or cut other government spending
- 42Why do Mainstream Economist think about KeynesiansThe believe they overestimate the power of the multiplier and their theories don't work quick enough.
- 43How does Fiscal Policy affect ADOther things remaining the same any change in the budget affects the AD.
1. Discretionary Fiscal Policy
2. Automatic Fiscal Policy - 44Automatic Fiscal PolicyIs a fiscal policy action that is triggered by the state of the economy. Ex when employment goes down people get more unemployment benefits
- 45Discretionary Fiscal PolicyIs a fiscal policy action that is initiated by an act of congress EX. Increase in defense spending
- 46What are Automatic Stabilizers and Induced TaxesAutomatic stabilizers are features of fiscal policy that stabilize Real GDP without explicit action by the government. Induced taxes are taxes that vary with real GDP. This all happens because outlays and revenues fluctuate with the Real GDP
- 47Needs Tested SpendingIS spending on programs that entitle suitably qualified people and businesses to receive benefits- benefits that vary with need and with the state of the economy
- 48What is the Difference between the Structural and Cyclical Surplus or DeficitStructural S or D happens at full employment. Cyclical is the budget balance that comes from outlays and revenues. The actual budget is a combo of both.
- 49How is Discretionary Fical Policy enactedFiscal Policy comes from las that make taxes and changes government outlays. Anything that changes in the gov. budget affects the aggregate demand and includes a multiplier effect
- 50Government Expenditure Multiplier and what does it doIt is the change in how much the government spends on goods and services from aggregate demand. (Basically when the gov spends more, more goods are bought AD is increased.
- 51Tax Multiplier and how does it workIt shows what the effect of a change in taxes has on aggregate demand. A change in taxes will change the disposable income. The increase in tax will lower disposable income creating a decrease in AD
- 52Transfer Payments Multiplier and how does it workIs the effect of transfer payment on AD. When there are more transfer payments you can get more money in people's hand and people have more to spend
- 53Fiscal StimulusIt is a increase in gov expenditure plus a increase in transfer payments and a decrease in taxes. They could also do a combo of the three
- 54What are the limitations of Discretionary FIscal Policy1. Law making time lag
2. Shrinking area of lawmaker decision
3. Estimating Pot. GDP
4. Economic Forecasting - 55—