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17 Cards in this Set

  • Front
  • Back
demand-side policies
monetary and fiscal; works by shifting the AD curve
supply-side policies
works by shifting the LAS curve
assumptions of fiscal model
1. financing the deficit doesn't have any offsetting effect (i.e. crowding out)
2. gov't knows what the situation is i.e. mpe
3. gov't knows the economy's potential income level
4. gov't has flexibility in changing spending and tax
5. size of the gov't debt doesn't matter
6. fiscal policy doesn't negatively affect other gov't goals
crowding out
the offsetting of a change in govt expenditures by a change in private expenditures in the opposite direction
Okun's rule of thumb
a 1% fall in the unemployment rate is associated with a 2% increase in income
automatic stabilizer
a built-in fiscal policy; which is any govt program or policy that will counteract the business cycle without any new govt action
(i.e. welfare payments, unemployment insurance, income tax system)
automatic destabilizer
institutional structures that offsets automatic stabilizers
(i.e. state's constitutional provisions to maintain balanced budgets)
procyclical fiscal policy
changes in govt psending and taxes that increase the cyclical fluctuations in the economy instead of reducing them
(i.e. budget cut and tax increases during recession or budget increase and tax decreased during expansionary)
Alternatives and supplments to monetary and fiscal policy
(1) directed investment policies
- rosy scenario policy
- financial guarantees
(2) autonomous consumption policy
(3) trade policy & export-led growth
- export-led growth policies
- exchange rate policies
rosy scenario policy
govt policy of making optimisitc predictions and nevermaking gloomy predictions
autonomous consumption policy
increase individual's credit -> increase AD
trade policy & export-led growth
increase autonomous export or decrease autonomous import
export-led growth policies
policies designed to stimulate U.S. exports and increase aggregate expenditures on U.S. goods,and hence to have a multiplied efect on U.S. income
exchange rate policy
a policy of deliberatedly affecting a country's exchange rate in order to affect its trade balance
rational expectation
forward-looking expectations that use available information
policy regime
a predetermined statement of the policy that will be followed in various circumstances
a one-time reaction to a problem; it is chosen w/out a predetermined framework