unit 3 test Flashcards

(36 cards)

1
Q

what is monetary policy

A

policies done by the federal reserve

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2
Q

what is fiscal policy

A

policies done by government efforts to promote full employment and price stability

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3
Q

what does fiscal policy change

A

government spending
taxes

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4
Q

recession is combated with which fiscal policy

A

expansionary policy
increase govt spending
decrease personal income taxes
increase transfer payments

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5
Q

inflation is combated with which fiscal policy

A

contractionary policy
decrease govt spending
increase personal income taxes
decrease transfer payments

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6
Q

when taxes lower

A

consumption and disposable income both increase

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7
Q

discretionary

A

involves policy makers doing fiscal policy in response to economic problem

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8
Q

automatic

A

takes place without policy makers having to respond to current economic problem

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9
Q

automatic examples

A

unemployment compensation and marginal tax rates

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10
Q

weakness of fiscal policy

A

outside, inside lag, and political motivation

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11
Q

inside lag

A

takes time to recognize economic problem and to promote solutions to problem

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12
Q

outside lag

A

takes time to implement solutions to problem

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13
Q

GDP and unemployment rate

A

inverese relation (opposite)

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14
Q

Price level and inflation rate

A

direct relation (same)

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15
Q

if inflated

A

workers demand higher nominal wages
(fixed the economy)

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16
Q

if recession

A

workers will work for lower nominal wages
(fixed the economy)

17
Q

three names for a shift to the left of the aggregate supply line

A

negative supply shock, stagflation, cost push inflation

18
Q

what is on the ID graph

A

r% or i% on y axis
Ig on x axis

19
Q

LRAS

A

period of time where input prices are completely flexible and adjust to changes in price level

level of RGDP is independent of price level

20
Q

when changing interest rates or price

A

it moves along the line

21
Q

SRAS

A

period of time where input prices are sticky

nominal wages are slow to fall even in high unemployment
(directly related RGDP and price level)

22
Q

what shifts the SRAS line

A

input prices/nominal wages
productivity
legal institution environment
capital stock

23
Q

aggregate meaning

A

adding all together

24
Q

aggregate demand relation with RGDP and price level

A

inverse relationship

25
political motivation
politicians face re election and more likely to support expansionary than contractionary fiscal policy (lower taxes and increase govt spending)
26
three reasons AD is downward sloping
real balances effect (wealth effect) interest rate effect foreign purchases effect
27
real balances effect (wealth effect)
price levels vs. purchasing power (price level high, households cannot afford as much) (price level low, households can buy more)
28
interest rate effect
real interest rate vs investment higher price level = increase interest rate = discourage investment
29
foreign purchases effect
higher price level increases demand for relatively cheaper imports
30
disposable income
gross income - taxes income after taxes
31
two types of fiscal policy
discretionary and automatic
32
which has a bigger impact (decrease taxes or increase govt spending)
increase govt spending because no savings left would need to decrease taxes a lot more than the amount increased of spending
33
how do businesses determine the amount of investment they undertake
expected return>interest cost, then invest expected return
34
shifts in ID (investment demand)
cost of production business taxes technological change stock of capital expectations
35
what moves along line in ID
interest rate change
36
monetary policy
promote maximum employment, stable prices, moderate long term interest rates