Macro final Flashcards
(20 cards)
What are fiscal policies?
What influences fiscal policies the most?
The interest rate influences the aggregate demand the most
What does it mean if the Aggregate-Demand slope is sloping downward?
Prices are low, quantity of goods produced is high
Liquidity Preference/Keynes Theory
Interest rate works to put money supply and money demand into balance
What does it mean if the interest rate is above the equilibrium IR?
People want to hold less money than the Fed, so the IR goes down. People buy assets
What does it mean if the interest rate is below the equilibrium IR?
People want to hold more money than the Fed, so the interest rate goes up. People increase their money supply by selling assets
What is the money supply?
Fixed by the Fed, and it can be changed through 4 things: The Fed changes the interest rate or requirements on reserves, open market operations, or changes the discount rate.
What is an open market operation
The Fed’s act of selling/buying government securities (bonds) in order to change the money supply
What does high price mean?
Raises the money demanded, which increases the interest rate and lowers the quantity of goods. Shifts the Quantity left on the price graph.
What does a low price mean?
Lower money demanded and interest rate fall, so quantity increases and quantity shifts right
When the money supply is increased …
The interest rate is lowered so the quantity of goods increases. Curve shifts to the right
When the money supply is contracted
Interest rate is higher so quanitity of goods decreases. Curve shifts left
What is a fiscal policy
The way in which the government spends and taxes to influence the economy - there’s expansionary and contractionary
What is the multiplier effect
Side effect of an expansionary fiscal policy where increased income increases consumer spending, amplifying the policy. (shifts right)
What is the equation for the spending multiplier?
1/(1-MPC)
What does the graph of the mulitiplier effect look like?
AD1 increases to AD2 and then to AD3
What does the crowding out effect look like?
AD1 increases to AD2 and then offsets by decreasing to AD3
What are the various methods for governments to collect federal budget revenue?
primarily through taxes but also through assets
Explain the difference between deficit and debt?
Debt - total value a country owes
Deficit - Imports are greater than export,s meaning we are buying more than we are selling.
