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25 Cards in this Set
- Front
- Back
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Equilibruim |
Is the level of output whose production will create total spending just sufficient to purchase that output (C+Ig=GDP) Ig= Difference between where equi. meets AE and Consumption C= Consumption Saving and planned investment are equal at equilibrium |
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Aggregate demand |
is a schedule or curve that shows the various amounts of real domestic output that domestic and foreign buyers desire to purchase at each possible price level. The aggregate demand curve shows an inverse relationship between price level and real domestic output. Real balances effect: When price level falls, the purchasing power of existing financial balances rises, which can increase spending.Interest rate effect: A decline in price level means lower interest rates that can increase levels of certain types of spending.Foreignpurchases effect: When price levelfalls, other things being equal, U.S. prices will fall relative to foreignprices, which will tend to increase spending on U.S. exports and also decreaseimport spending in favor of U.S. products that compete with imports |
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Aggregate Supply |
Aggregatesupply is a schedule or curve showing the level of real domestic outputavailable at each possible price level. The relationship is determined on the basis of whether input prices and out put prices are fixed or flexible. In the immediate short run, both input prices and output prices are fixed. The input prices are fixed by contractual agreements such as labor contracts.Output prices may be fixed as a result of issuance of catalogs or price lists that are in effect for a stated period of time. |
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AS Short run |
AS slopes upward because with inputprices fixed, rising prices increase real profits and declining prices resultin decreases in real profits.
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AS long run |
the economy will produce thefull-employment output level no matter what the price level is because profitsalways adjust to give firms exactly the right profit incentive to produceexactly the full employment output level.
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Fiscal policy |
Discretionaryfiscal policy refers to the deliberate manipulation of taxes and governmentspending by Congress to alter real domestic output and employment, controlinflation, and stimulate economic growth. “Discretionary” means the changes are at the option of the Federalgovernment. Discretionary fiscal policychanges are often initiated by the President, on the advice of the Council ofEconomic Advisers (CEA).
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Expansionary Fiscal Policy |
Expansionaryfiscal policy is used to combat a recession. The problem during a recession is that aggregate demand is too low, soincreasing government spending and/or a reduction in taxes will increaseaggregate demand. Expansionary fiscalpolicy will create a deficit.
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Contractionary policy |
Whendemand-pull inflation occurs, contractionary policy is the remedy. The problemwith inflation is that aggregate demand is too high so the government willdecrease government spending and/or increase taxes to cause aggregate demand tofall. When the government usescontractionary fiscal policy, it will create a surplus.
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What are automatic stabilizers. How and why? |
Taxrevenues vary directly with GDP; income, sales, excise, and payroll taxes allincrease when the economy is expanding and all decrease when the economy iscontracting.Transferpayments like unemployment compensation and welfare payments vary indirectlywith the economic business cycles. Unemployment compensation and welfarepayments decrease during economic expansion. Unemployment compensation and welfare payments increase during economiccontractions.Thesize of automatic stability depends on the responsiveness of changes in taxesto changes in GDP: The more progressivethe tax system, the greater the economy’s built-in stability.Aprogressive tax system means the average tax rate rises with GDP.Aproportional tax system means the average tax rate remains constant as GDPrises.Aregressive tax system means the average tax rate falls as GDP rises.However, tax revenues will rise with GDPunder both the progressive and the proportional tax systems, and they may rise,fall, or stay the same under a regressive tax system
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M1 money |
Cash you have Checkable deposits Travelers checks |
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M2 money |
M1+ Small denominations CD's, saving account |
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Who determines the buying and selling of securities? |
The Federal Open Market Committee |
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Who issues money? |
The federal reserve |
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3 Functions of money |
Medium of exchange-Used to buy/sell goods Unit of account-Goods valued in dollars Store of value-Hold some wealth in money form |
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What backs the value of money in our economy |
The scarcity of the amount of bills in circulation Peoples acceptance to use it as a form of currency |
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Crowding out effect |
A situation when increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending is called crowding out effect.
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FDIC ensures deposited in what? |
Bank, it backs up the banking system. |
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Structure of federal reserve |
The Board of Governors is thecentral authority. The seven Boardmembers are appointed by the U.S. president for 14-year terms that arestaggered so that one member is replaced every two years. The long term provides the Board withcontinuity, experienced membership, and independence from politicalpressures. The12 Federal Reserve Banks implement the decisions of the Board of Governors andare aided by the Federal Open Market Committee. |
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The US public dept |
The national or public debt is the totalaccumulation of the Federal government’s total deficits and surpluses that haveoccurred through time. Deficits (and byextension the debt) are the result of war financing, recessions, and lack ofpolitical will to reduce or avoid them.Treasury bills are short-term securities.Treasury notes are medium-termsecurities.Treasury bonds are long-term securities.U.S. savings bonds are long-term,non-marketable securities.
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Private closed economy |
An economy in which no activity is conducted with outside economies.
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Political Business Cycle |
A business cycle that results primarily from the manipulation of policy tools (fiscal policy, monetary policy) by incumbent politicians hoping to stimulate the economy just prior to an election and thereby greatly improve their own and their party's reelection chances.
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What function of money is being used now? |
Medium of exchange-Used to buy/sell goods Store of value-Hold some wealth in money form |
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Official name of money in our wallet? |
Federal Reserve Notes |
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Federal Budget Deficet |
A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending.
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Change in AS and DS |
Decrease in AD-recessionand cyclical unemployment Decrease in AS-raisesthe price level andproduces cost-push inflation Increase in AD-Inflation would result, small economic growth increase in AS- Strong economic growth, full employment, and only mild inflation. |
