REAL FUNDAMENTALS Flashcards
(14 cards)
What are the four factors of production?
Capital
Enterprise
Land
Labour
What is LRAS?
maximum sustainable output of an economy when all resources are fully employed
What does Q2cell influence?
Supply-side policies
What does q2cell stand for?
Quality and quantity of factors of production
What are the main differences between SRAS and LRAS?
SRAS: Indicates short-term production flexibility
LRAS: Represents the economy’s long-term potential output
What is fiscal policy?
Government changed to spending and taxation to influence AD
Example of expansionary fiscal policy?
- Increase in gov spending
- Cutting taxes
- Raise welfare benefits to boost consumption
Example of contractionary fiscal policy?
- Decrease gov spending
- Increasing taxes
What is the purpose of monetary policy?
To control inflation, stabilize economy and influence aggregate demand
When is expansionary monetary policy used?
When the economy is in a recession or experiencing low inflation - the goal is to boost AD
3 examples of expansionary monetary policy?
- Lower interest rates
- Quantitative easing
- Lower reserve requirements
When is contractionary monetary policy used?
When the economy is experiencing high inflation or is overheating - to reduce AD to control inflation
3 examples of contractionary monetary policy?
- Raise interest rates
- Sell government bonds
- Increase reserve requirements
Difference between fiscal policy and monetary policy?
Fiscal policy focuses on GOV SPENDING and TAXATION to INFLUENCE AD
Monetary policy uses INTEREST RATES and the MONEY SUPPLY to CONTROL INFLATION and stabilize AD
