AS and AD
The 4 shifters of the aggregate demand curve includes the following expenditures.
Consumer Spending, Investment Spending, Government Spending, & Net Exports
Fiscal Policy aims to shift this curve.
Aggregate Demand
If the government’s primary goal is to reduce inflation, what fiscal policy action would be appropriate in the short-run?
Increase taxes, reduce government expenditures
The MPS is .1
What is .9?
The 3 shifters of the aggregate supply curve include the following production determinants
resources cost/prices, actions of the government, productivity... and inflationary expectations
A decrease in the wages and production cost will most likely cause the price level and real GDP to change HOW in the short-run?
Price Level decreases & Real GDP increases.
The MPS is .25.
What is .75?
This occurs in the AD/AS model when the government administers new subsidies to the farming market... what will shift and which direction?
Aggregate Supply & shifts to the right.
When conducting contractionary fiscal policy, the government either manipulates spending and/or taxes in these directions.
What is decrease government spending and increase taxes?
This occurs in the short-run when there is a decrease in real interest rates.
Investment spending increases... so Aggregate Demand increases and shifts to the right.
The Spending mulitplier is 2.
What is .5?
If operating at Full Employment output, an increase in aggregate demand results in what changes to PL and rGDP?
Price Level increases & rGDP increases
The most direct and effective fiscal policy action when eliminating a recessionary gap.
What is increase government spending?
This occurs in the LONG-RUN when there is a decrease in real interest rates.
What is the Long-Run aggregate supply shifts right?
The tax multiplier is 4.
What is .8?
Assume the economy is at full employment long run equilibrium. There is an increase in consumer spending. If there are no changes made to fiscal policy, the Real GDP and price level will eventually do this in future?
GDP will return to full employment output and Price levels will rise.
If the government enacts two fiscal policy changes; increasing spending by $30 billion while also simultaneously increasing taxes by the same amount...what is the total change in GDP? (MPC = 0.75)
What is an increase of $30 billion in GDP?
The LRAS curve is vertical because of this economic concept?
What is full employment...reached the most efficient use of resources...maximum sustainable capacity...wages are flexible in the long run
The tax multiplier is 19?