Eco3: Properties Of The Ad And As Curves, Gaps, And The Spending Multiplier

Front 1

The ad curve will shift to the right when the following changes for reasons other than the change in the price level, with consumption increases in...

Back 1

Expectations of inflation or shortages in the future, increased incomes or wealth or optimism about jobs and income

Front 2

The ad curve will shift to the right when the following changes for reasons other than the change in the price level, with investment increases in...

Back 2

Interest rates drop and investors gain optimism

Front 3

The ad curve will shift to the right when the following changes for reasons other than the change in the price level, with government expansionary policies such as...

Back 3

Increase in spending, increase in the money supply, decrease in taxes

Front 4

The ad curve will shift to the right when the following changes for reasons other than the change in the price level, with net export increases such as...

Back 4

Exchange rate decreases (imports decrease), foreign income increases (exports increase)

Front 5

What happens when the price level is above the equilibrium on a AD/AS graph?

Back 5

Store surpluses due to the high price leads to a decrease in the price level

Front 6

What happens when the price level is below the equilibrium on a AD/AS graph?

Back 6

Store shortages due to high demand for an underpriced product leads to an increase in the price level

Front 7

Where will long-run equilibrium occur no matter where AD crosses LAS?

Back 7

Full-employment output

Front 8

What do the behaviors of AD and AS determine?

Back 8

Real GDP and price level

Front 9

What can inflation result from?

Back 9

Increases in AD or decreases in AS

Front 10

What is cost-push?

Back 10

When an increase in resource costs shifts the AS curve to the left

Front 11

What's another result of cost-push besides an increase in the price level?

Back 11

A decrease in real gdp

Front 12

What is stagflation?

Back 12

A combination of rising prices and falling output

Front 13

What is demand pull inflation?

Back 13

The result of the AD curve shifting out to the right relative to the AS curve

Front 14

What is creeping inflation?

Back 14

Inflation that remains steady for a long period at a low rate

Front 15

What is galloping inflation?

Back 15

Unsteady inflation that exceeds 10 percent per year and grows month after month

Front 16

What is hyperinflation?

Back 16

Very rapid price increases in excess of 50 percent per year

Front 17

What is a recessionary gap?

Back 17

When Ye, the equilibrium real GDP level, is below full employment output, Yf

Front 18

What is an inflationary gap?

Back 18

When Ye, the equilibrium real GDP level, is above Yf, the full employment output level

Front 19

If Ye's equilibrium occurs at full employment output Yf, then what type of unemployment is absent, and what shouldn't firms do?

Back 19

Cyclical unemployment is absent, and firms should not raise wages or overextend the labor force

Front 20

What does classical theory suggest would happen if there was a recessionary gap in the economy in order for the gap to close?

Back 20

The surplus of workers and other inputs would cause wages and other input prices to fall, thus shifting AS to the right, lowering the price level, and increasing real GDP until the equilibrium is at full employment output

Front 21

What does classical theory suggest would happen if there was a inflationary gap in the economy in order for the gap to close?

Back 21

Production beyond full employment output necessitates high wages, which lead AS to shift left, the price level to increase, and real GDP to fall until Ye=Yf

Front 22

What do keynesians believe should occur to resolve inflationary and recessionary gaps?

Back 22

The government should cut and increase spending, respectively

Front 23

What does the spending multiplier measure?

Back 23

The number by which the initial amount of new spending should be multiplied to find the total resulting increase in real GDP

Front 24

What is the marginal propensity to consume (MPC) and what is its formula?

Back 24

The amount by which consumption increases for every additional dollar of real income; MPC=change in consumption/change in real income

Front 25

What is the marginal propensity to save (MPS) and what is its formula?

Back 25

The fraction of each additional dollar of income that is saved; MPS=change in saving/change in real income

Front 26

What is the formula for the spending/expenditure multiplier?

Back 26

multiplier=[1/(1-MPC)] = 1/MPS