Econ 102 Midterm 2

Front 1

Government spending multiplier

Back 1

=1/(1-MPC)

Front 2

Taxation multiplier

Back 2

= -MPC/(1-MPC)

Front 3

Unemployment rate

Back 3

= # of unemployed / Labour force

Front 4

Labor force participation rate

Back 4

= labor force / working age population

Front 5

Stock market crash effect

Back 5

C falls, Ad shift left, short run AS shift right, unemployment higher

Front 6

Recessionary gap

Back 6

Input prices fall, SRAS shift right

Front 7

Inflationary gap

Back 7

Input prices go up, SRAS shift left

Front 8

Oil price increase effect

Back 8

Increase cost, shift SRAS left (stagflation: falling output and rising prices)

Front 9

Why wage rates may not adjust to equilibrium

Back 9

1) minimum wage above equilibrium wage

2) Labour unions

3) efficiency wages (deliberately set above market rate to increase productivity)

Front 10

2 limitations of unemployment rate

Back 10

1) discouraged workers

2) underemployed workers (working less than they want or in jobs below their skill level)

Front 11

Why AD slope downward?

Back 11

1) consumption (p incr., C decr.)

2) investment (p incr, interest incr, decr I spending)

3) government spending HAS NO EFFECT

4) NX (import incr, export decr, p incr, NX decr)

Front 12

AD/AS model

Back 12

Useful for understanding overall economic conditions and formulate policy responses to shocks

Helps understand what drives price level and unemployment and real GDP

Front 13

Expansionary

Back 13

Shift ad right, O incr, P incr, low unemployment

Front 14

Fiscal policy

Back 14

Makes business cycle ups and downs less pronounced, government decisions about level of taxation or spending, affects AD, expansionary or contractionary

Front 15

Limits of fiscal policy

Back 15

Often cut taxes in recession, government must find way to make up for that lost tax revenue, ricardian equivalence predicts if tax cuts but no decrease in spending will not change behavior

Front 16

Multiplier effect

Back 16

Increase in consumer spending that occurs when spending by one person causes others to spend more too

Front 17

Time lags

Back 17

Between when policies are chosen and when they are implemented

Info lags-understanding economy

Formulation lag-pass or not to

Implementing-time to affect economy

Front 18

Automatic stabilizers

Back 18

Taxes and government spending that affect fiscal policy without specific actions from policy makers

Front 19

MPC

Back 19

Marginal prosperity to consume, amount consumption increases when after tax income increases by one dollar, between zero and one

Front 20

Transfer payments

Back 20

Payments from government to individuals for programs that don't involve a purchase of goods and services

Front 21

Government spending multiplier is bigger than taxation multiplier

Back 21

True