Term
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Definition
Economic policy should maintain long-run growth and full employment, minimize inflation, and promote price stability |
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Term
| What does the aggregate supply curve show? |
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Definition
| It shows the relationship between the price level and the level of output that will be supplied. It will be upward sloping |
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Term
| Why is the aggregate supply curve upward sloping? |
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Definition
| The price level the firms recieve for output are going up at a greater rate than the costs are (wages, capitol costs) |
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Term
| What would cause the aggregate supply curve to increase? |
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Definition
| Increased technology, land, labor, or capitol, or a decrease in oil prices |
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Term
| What does the aggregate demand curve show? |
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Definition
| It shows the relationship between the price and the amount of real GDP that is demanded |
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Term
| What makes up the AD curve? |
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Definition
| consumption, investment, government spending, and net exports |
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Term
| Why is the AD curve downward sloping? |
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Definition
As people spend more money, they can afford more goods. When people buy more goods, the price decreases. And therefore, spending increases.
(As prices go down, output increases) |
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Term
| What can cause the AD curve to increase or shift to the right? |
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Definition
1. increase in consumer confidence
2. Increase in business confidence
3. Increase in prosperity with our trading partners |
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Term
| What are fiscal policies? |
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Definition
| A change in taxes or gov't spending designed to affect the economy |
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Term
| What is an expansionary fiscal policy? |
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Definition
| They are designed to decrease unemployment by increasing the output and the price level. These also, in turn, increase inflation because of increased government spending |
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Term
| What are monetary policies? |
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Definition
| These are designed to lower interest rates by increasing the money supply. This comes from the fed |
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Term
| What are contractionary fiscal policies? |
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Definition
| These lower inflation, but increase unemployment |
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Term
| Where are the 12 Central banks located? |
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Definition
| Cleveland, Chicago, Richmond, Dallas, New York, Kansas City, San Francisco, Minneapolis, Boston, Atlanta, Philadelphia, St. Louis |
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Term
| What are the two things that weaken the money multiplier? |
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Definition
1. People don't deposit money
2. Banks don't loan out money |
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Term
| What is the money multiplier? |
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Definition
| Shows the potential increase in the money supply that is created when deposits are added to a bank |
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Term
| What is the spending multiplier? |
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Definition
| Shows the potential increase in spending |
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Term
| What is the tax multiplier? |
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Definition
| A measure in the change of overall production caused by government induced taxes |
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Term
| What is the speculative motive for holding money? |
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Definition
| People might sometimes think that holding on to their money might be more valuable for them than investing it and earning interest rates because interest rates are always changing. |
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Term
| What is the transactions motive? |
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Definition
| This is the money that people carry around with them. The more wealthy a person is, the more money they will carry with them. |
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