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Macro > Exam 3 > Flashcards

Exam 3 Flashcards

1
Q

If the economy is self regulating in recessionary gap, where real gdp>natural gdp

A

Wages fall, SRAS curve shifts right until natural and real gdp equal

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2
Q

Crowding out

A

Is a decrease in private expenditures at occurs as a consequence of increased govt spendings they need to finance

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3
Q

What are limitations to fiscal policy

A

Multiplier size is unknown
Lags
Crowding out

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4
Q

What affects how big the multiplier effect is?

A

Taxes, imports, prices
Type of government spending
Tax cuts
Income

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5
Q

Spending multiplier formula

A

1/(1-MPC)

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6
Q

Tax multiplier formula

A

-MPC/(1-MPC)

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7
Q

The multiplier effect

A

An effect where an increased in spending produces an increase in national income greater than the initial amount spent

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8
Q

Regressive tax structure

A

As income rises, taxes decline

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9
Q

Proportional tax structure

A

Taxes equal income

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10
Q

Progressive tax structure

A

As income rises so does tax

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11
Q

Average tax rate

A

The amount you pay in taxes / income

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12
Q

Marginal tax rate

A

What tax you pay on an additional dollar of income

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13
Q

Keynesian theorists

A

May not hold in money economy
Influence more than just investment rates
Inflexible downward
Role for government to affect aggregate demand

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14
Q

Classical theorists

A

Says law: supply creates its own demand
Amount of households save and firms investment depends on interest rates
Prices and wages are flexible
Economy self regulates

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15
Q

Why is the size of debt the wrong way to look at it?

A

Look at debt relative to national income
debt/real gdp

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16
Q

What is the difference between deficits and debts?

A

Deficit: the annual difference between govt spending and govt revenue

Debt: the total amount of money U.S govt owes

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17
Q

Tax principle

A

Ability to pay principle
Benefits received principle
Vertical equity: taxes paid, increases with amount of earned income
Horizontal equity: think of the houses example

18
Q

If the economy is self regulating, an increase in aggregate demand and decrease in aggregate demand

A

Increase- raises price level and real gdp in short run
Prices are raised in long run

Decrease- lowers price level and real gdp in short run
Prices are lowered in long run

19
Q

If the economy is self regulating then in inflation;any gap

A

Wages will rise and SRAS curve shifts to left

20
Q

Laffer curve

A

A decrease in taxes lead to higher tax revenues

21
Q

Structural deficit

A

The part of the budget deficit that would exist even if the economy was operating at full employment

22
Q

Cyclical deficit

A

The part of the budget that is a result of a downturn in economic activity

23
Q

Value added tax

A

Value added: The difference between what a producer sells a final good and what it pays for

VAT: Is applied to the value added at each stage of production

24
Q

Expansionary fiscal policy

A

Government expenditures does up and or taxes go down

25
Q

Contractionary government policy

A

Government expenditures goes down and or taxes goes up

26
Q

Discretionary fiscal policy

A

Deliberate changes in government expenditures and or taxes

27
Q

Automatic fiscal policy

A

Changes in government expenditures or taxes that occur automatically without congressional action

28
Q

Systematic risk

A

If we allow one institution to fail, the entire market will fall

29
Q

Fractional reserve banking

A

Banking crates money by holding on to reserve of money deposited with them and lending the remainder

30
Q

Adverse selection

A

One side of the market has information not known to others and self select on basis of that info

31
Q

Required reserve ratio

A

Is a % if each dollar deposited that must be held in a reserve form

Required reserve ratio = 1/R x change in R
Required reserve = r x checkable deposits

32
Q

Excessive reserves

A

=reserves-required reserves

33
Q

Open market purchase

A

The buying of government securities

34
Q

Open market sale

A

Selling of government securities by the fed

35
Q

Federal funds market

A

A market in which banks lend reserves to own another, usually for short periods

36
Q

Discount loan

A

Is the loan the bank gets from the Fed

37
Q

Discount rate

A

Is the interest rate the bank pays for a discount loan

38
Q

Federal funds market

A

Market for reserves on loans

39
Q

Simple quantity of money

A

The theory assumes velocity and real gdp are constant, changes in money supply lead to strictly proportional changes in price level

40
Q

Liquidity effect

A

Change in supply of loanable funds

Macro (1 decks)

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