Term
|
Definition
1) Real Balance Effect ("Wealth Effect")
2) Interest Rate Effect
3) International Effect |
|
|
Term
| Real Balance (Wealth) Effect |
|
Definition
| price level increases (inflation) reduce the real value of money balances (up P = down M/P = down C = down AD) |
|
|
Term
|
Definition
| if real balances fall, savings declines (down savings = up interest rate = down quantity of investment) |
|
|
Term
|
Definition
| if the price level of the US goes up, we will import more and export less, meaning our net exports and therefore AD will decrease |
|
|
Term
|
Definition
1) Real income and wealth
2) Foreign Income and Wealth
3) Expected Income and Wealth
4) Expected Inflation (buy what you need immediately)
5) Exchange Rate (higher exchange rate means dollar depreciation = less imports and more exports) |
|
|
Term
| Why does the AS curve slope up? |
|
Definition
| If input and output prices change uniformly, there is no change in output, but if only output prices rise/fall, increase/decrease output |
|
|
Term
| Which prices (input vs. output) adjust more slowly? |
|
Definition
| input prices (workers, capital, raw materials) adjust slower than output prices (services, goods) |
|
|
Term
|
Definition
| full employment output (when u=u*) |
|
|
Term
| 3 factors that shift SRAS only |
|
Definition
1) supply shocks (weather)
2) resource prices (input prices, -)
3) expected inflation (-) |
|
|
Term
| 3 factors that shift LRAS |
|
Definition
1) resources (land, labor, capital)
2) technology
3) institutions (property rights, income taxes, social stigmas) |
|
|
Term
|
Definition
| the three sources of economic growth are resources, technology, and institutions |
|
|
Term
| Beliefs of Classical economists |
|
Definition
1) prices inflexible in both directions (no SRAS)
2) focus on the supply (LRAS) rather than demand
3) focus on LRAS makes the economy seem inherently stable
4) no extended unemployment or significant contractions/recessions |
|
|
Term
| Beliefs of Keynesian economists |
|
Definition
1) prices inflexible downward (fixed contracts and money illusion)
2) when prices don't adjust, output must
3) AD determines output or real GDP
4) in the LR, we're all dead |
|
|
Term
|
Definition
1) government spending
2) taxes |
|
|
Term
|
Definition
| changes in the money supply (to affect interest rates) |
|
|
Term
|
Definition
| MV=PY (money x velocity = price level x real income) |
|
|
Term
| three stages of fiscal policy (Colander) |
|
Definition
1) triage policy (financial sector is the heart, need to keep it going at all costs)
2) treatment policy (monetary and fiscal policies, as well as expectations)
3) rehabilitation stage (repair the damage done in the other two stages) |
|
|
Term
|
Definition
| spending in which year-to-year spending adjustments allowed (defense spending and misc. spending) |
|
|
Term
|
Definition
| obligatory payments based on existing laws (social security, medicare, etc.) |
|
|
Term
| long run trends in government expenditures (outlays and revenues) |
|
Definition
1) mandatory spending rising - 26% to 62%
2) defense declining - 49% to 21%
3) discretionary declining - 67% to 38% |
|
|
Term
|
Definition
| net accumulation of budget defecits |
|
|
Term
| marginal propensity to consume |
|
Definition
| portion of additional income used for consumption (MPC) where 0 |
|
|
Term
| 2 types of keynesian fiscal policy (general) |
|
Definition
| expansionary and contractionary (recessionary) |
|
|
Term
| 3 critiques of keynesian fiscal policy |
|
Definition
1) lags (recognition, implementation, and impact)
2) crowding out
3) new classical critique |
|
|
Term
| three types of lags (and description) |
|
Definition
1) recognition lags - difficult to realize when the government should use expansionary or recessionary policy
2) implementation lags - fiscal policy requires laws and congressional agreement as well as actual implementation by bureaucrats which takes a lot of time
3) impact lag - allows for the fact that fiscal policy takes a while to impact the economy |
|
|
Term
| 4 types of automatic stabilizers |
|
Definition
1) progressive income taxes
2) corporate income taxes
(change in T)
3) Unemployment insurance
4) welfare payments
(change in G) |
|
|
Term
|
Definition
| government must compete with private borrowers for funds, effectively "crowding them out" of the market |
|
|
Term
|
Definition
| more debt today means higher taxes later, and people know this, so that AD is unchanged, because while government spending goes up, savings do as well, reducing the effects of the fiscal policy ("inflation is always and everywhere a FISCAL phenomenon) |
|
|
Term
|
Definition
| any tax system in which the tax rate rises with income |
|
|
Term
|
Definition
| tax rate on next dollar of income |
|
|
Term
|
Definition
| total tax bill as a portion of income |
|
|
Term
|
Definition
| tax rate increase can increase tax revenue, but only up to a certain point, were it will decrease revenue (decreased propensity to work to earn an extra dollar or fraction thereof) |
|
|
Term
| 4 methods to enact supply-side fiscal policy and their goals |
|
Definition
1) lower income taxes
2) lower corporate profit taxes (more encouragement for innovation and technological development)
3) tax credits for research and development
4) educational subsidies
goal: shift out the LRAS curve |
|
|
Term
| principle tool of supply-side keynesian fiscal policy (and three examples) |
|
Definition
| marginal income tax RATES (progressive invome tax, marginal tax rate, average tax rate) |
|
|
