Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

20 Cards in this Set

  • Front
  • Back
Output and employment are not growing while inflation is raising prices

Also known as cost push inflation
What kind of inflation is stagflation?
A rise in production costs

This is a leftward/upward shift
Causes of stagflation?
Main - Rising energy costs (like oil)

- Worldwide crop failure
- Lifted wage and price control
-devaluation of the dollar (cause we needed more dollars to trade with other countries - this increased exports, but imported goods cost more)
- Production costs rose
- Demand for higher wages because consumer prices increased, which made employers charge more money
To fix stagflation, what happened?
The fed took it into their own hands.

They used monetary policy to tighten the money supply

This reduced the rate of inflation from 13% to 4% which caused an increase in unemployment
What is the goal of supply-side economics?
To shift aggregate supply curve to the right, which will lower prices and increase output
What is one technique of supply-side economic policies?
Cutting taxes - lower tax rates on interest, dividends and capital gains (the selling of stock)

This provides a greater incentive to invest and lend out money which makes more money available to borrow
What department received tax credits?
firms who spend money on research and development - cause it would increase productivity
Who receivwed lower income taxes?
Corporations - so they could have greater profits and could invest more

Personal income taxes as well - made it more flat - encouraged people to work more
What was taxed less?
Saving accounts - so people saved more
Laffer Curve
Just says that people will stop working once the government takes too much money from them

Y axis - Tax revenues received by government

X - axis - Rate of taxation
Federal Deficits
Revenues - Expenditures = deficits

Right now it's 430 billion, which is 2-3% of GDP
Federal Deficits cause interest rates to ___ and investments to ____
Rise; decrease

Shifts demand for money to the right

This is referred to as "crowding out"
Federal deficits cause interest rates to rise, which caused
foreign funds to increase for U.S. securities

the US dollar appreciates/increases in value relative to foreign currency, which makes our exports cost more to foreign traders, which lowers demands and decreases exports and makes foreign goods cheap - increasing imports

This is the crowding in effect
Which is stronger at a flat part of a GDP graph?
Crowding in effect
Which is stronger at verticle part of GDP graph?
Crowding out
If Government spending goes up, what happens?
GDP goes up, investments go up, income goes up, and savings go up
National Debt
Accumulation of amount owed

This was the highest at the end of WWII, 127% of GDP

Now it is 8.8 Trillan, and 66% of GDP
Effects of federal deficits
- burden on future generations - future taxes will rise

- Crowding out effect capital goods with decline along with growth
- Taxes will increase and disposable income will decrease
- redistribution of income
- Debt to foreigners
- Bankrupcy
Government spending is
good for economic recovery and national security