| A | B |
|---|
| Supply Side Boom | When the aggregate supply curve shifts outward and the aggregate demand curve stays constant, the price level falls, real gross domestic product increases, and the unemployment rate falls. |
| Stagflation | A situation seen in the macro economy when inflation and the unemployment rate are both increasing. |
| Supply Shocks | An economy wide phenomenon that affects the costs of firms and results in a shifting aggregate supply curve. |
| Phillips Curve | A graphical device that shows the relationship between inflation and the unemployment rate. In the short run, it is downward sloping and in the long run it is vertical at the natural rate of unemployment. |
| Fiscal Policy | Deliberate changes in government spending and net tax collection to affect economic output, unemployment, and the price level. |
| Keynesian Economics | A fundamental premise is that a depressed economy is the result of inadequate spending and government intervention can help move the economy back to full employment. |
| Expansionary Fiscal Policy | Increases in government spending or lower net taxes meant to shift aggregate demand to the right toward full employment and lower the unemployment rate. |
| Contractionary Fiscal Policy | Decreases in government spending or higher net taxes meant to shift aggregate demand to the left toward full employment and reduce the inflationary pressures. |
| Quantity Theory of Money | The theory that the quantity of money determines the price level and that the growth rate of money determines the rate of inflation |
| Velocity of Money | The average number of times a dollar is spent in a year. V = PQ/M |
| Equation of Exchange | The equation says that nominal gross domestic product (GDP) or (P*Q) is equal to the quantity of money (M) multiplied by the number of times each dollar is spent in a year (V). MV = PQ |
| Monetarism | The theory of business cycles that asserts gross domestic product will grow steadily if the money supply grows steadily |
| Budget Deficit | Exists when government spending exceeds revenue collected from taxes. |
| Budget Surplus | Exists when revenue collected from taxes exceeds government spending. |
| Automatic Stabilizers | Built-in fiscal policy mechanisms that automatically regulate, or stabilize, the macro economy as it moves through the business cycle, by changing net taxes collected by the government. These stabilizers increase a deficit during a recessionary period and increase a budget surplus during an inflationary period, without any discretionary change on the part of the government. |
| Crowding Out Effect | Typically the result of government borrowing to fund deficit spending, this is the decline in spending in one sector due to an increase in spending from another sector. |
| Net Export Effect | The process of how expansionary fiscal policy decreases net exports due to rising interest rates. |
| Investment Tax Credit | A reduction in taxes for firms that invest in new capital like a factory or piece of equipment. |
| Supply Side Fiscal Policy | Fiscal policy centered on incentives to save and invest to prompt economic growth with very little inflation. These policies are aimed at shifting the AS curve to the right. |
