unit 3 test Flashcards
(36 cards)
what is monetary policy
policies done by the federal reserve
what is fiscal policy
policies done by government efforts to promote full employment and price stability
what does fiscal policy change
government spending
taxes
recession is combated with which fiscal policy
expansionary policy
increase govt spending
decrease personal income taxes
increase transfer payments
inflation is combated with which fiscal policy
contractionary policy
decrease govt spending
increase personal income taxes
decrease transfer payments
when taxes lower
consumption and disposable income both increase
discretionary
involves policy makers doing fiscal policy in response to economic problem
automatic
takes place without policy makers having to respond to current economic problem
automatic examples
unemployment compensation and marginal tax rates
weakness of fiscal policy
outside, inside lag, and political motivation
inside lag
takes time to recognize economic problem and to promote solutions to problem
outside lag
takes time to implement solutions to problem
GDP and unemployment rate
inverese relation (opposite)
Price level and inflation rate
direct relation (same)
if inflated
workers demand higher nominal wages
(fixed the economy)
if recession
workers will work for lower nominal wages
(fixed the economy)
three names for a shift to the left of the aggregate supply line
negative supply shock, stagflation, cost push inflation
what is on the ID graph
r% or i% on y axis
Ig on x axis
LRAS
period of time where input prices are completely flexible and adjust to changes in price level
level of RGDP is independent of price level
when changing interest rates or price
it moves along the line
SRAS
period of time where input prices are sticky
nominal wages are slow to fall even in high unemployment
(directly related RGDP and price level)
what shifts the SRAS line
input prices/nominal wages
productivity
legal institution environment
capital stock
aggregate meaning
adding all together
aggregate demand relation with RGDP and price level
inverse relationship