| A | B |
|---|
| long run aggregate supply curve | vertical; because in the long run wages and prices are flexible |
| what would a balanced budget rule do to fiscal policy? | eliminate automatic stabilizers; no deficits or surpluses |
| supply-side fiscal policy | lowering taxes on business research; lower taxes on capital goods |
| GDP investment spending (I) | capital goods, changes in business inventories |
| natural rate of unemployment | no cyclical unemployment |
| national debt of government | sum total of past budget deficits and surpluses |
| expansionary supply shock | energy discoveries, shifts SRAS to right |
| economic growth | increase in production possibilities frontier; rightward shift of LRAS |
| fiscal policy | changing government expenditures and/or changing taxes |
| CPI measures | inflation |
| stagflation | leftward shift in SRAS; higher inflation AND unemployment |
| changes in government spending affect | AGGREGATE DEMAND |
| supply-side economists favor | lower taxes on businesses to encourage them to grow, produce more, and hire more workers |
| crowding out effect | higher interest rates caused by expansionary fiscal policy |
| nominal GDP increase can be caused by? | higher real GDP AND/OR higher inflation |
| labor productivity increases lead to increase in | aggregate supply |
| standard of living increases caused by | labor productivity increases |
| automatic fiscal policy stabilizers | produce deficits during recessions, surpluses during expansions |
| tax cuts, spending increases by government cause | GDP increase; Price level increase |
| short-run Phillips curve | shows inverse relationship between inflation and unemployment in short-run |
| SRPC shows that increase in unemployment comes with | a decrease in inflation |
| does official unemployment rate count discouraged workers? | nope |
| Keynesian Theory: cutting taxes, increasing spending leads to: | consumption UP; unemployment DOWN |
| increase in labor productivity leads to: | output: UP; inflation: DOWN |
| When AD or SRAS curves shift left, what happens to output? | output (GDP) decreases |
| Decrease in price of inputs causes what to happen? | increase in SRAS, decrease in price level |
| short-run Phillips curve shows relationship between: | unemployment and inflation |
| AD= | consumption + investment + government spending + net exports |
| What is difference between SRPC and LRPC? | SRPC is upward sloping and LRPC is vertical |
| What is difference between SRAS and LRAS? | SRAS is upward sloping and LRAS is vertical |
| Is there frictional unemployment at the full-employment level of output? (Yf) | yes, there's always frictional unemployment |
| what does an increase in autonomous consumption spending do to the AD curve? | shifts it to the right |
| according to Keynes, if income taxes are raised and government spending is cut, what happens to unemployment? | it goes UP (government workers are laid off) |
| Is the long-run Phillips Curve vertical at natural rate of unemployment | yes |
| what does lowering income taxes do to disposable income? | increases it (you keep more of your money) |
| which model has been used to justify supply-side economics? | the Laffer Curve |
| what happens to inflation and unemployment during a typical recession? | unemployment UP, inflation DOWN |
| if a country is in a recession and the government does nothing, what will eventually happen? | falling wages shift SRAS curve right, producing full employment |
