Whole Class
All, sum of
T of F: change in price levels alone can shift the AD/AS/LRAS curves
False.
Why is the SRAS curve upward sloping?
wages and resource prices are sticky and do not change immediately when price levels change
When GDP is below optimal output with full employment and prices/wages are down, what period is this economy currently in?
Automatic Stabilizers
In the long run, what happens to wages when price levels increase?
Increase
The sum of GDP ='s what?
AD
Economic period where AD/AS equilibrium is operating above Real GDP qty output with full employment (LRAS).
Inflationary Gap / Expansionary Period
What is the #1 contributor of Real GDP that increases or decreases AD?
Consumption (C)
Economic period where AD / AS equilibrium is operating below Real GDP qty output at full employment (LRAS)?
Recessionary Gap / Contractionary Period
1 / (1-MPC)
What are the two determinants of LRAS?
1. Permanent change in cost/availability of input resources
2. Permanent change in technology
To take action, to enact something
What is stagflation?
High inflation and stagnant economic growth
What does the economy experience when increased investment occurs, and what changes on the AD - AS model in the long run?
Economic growth occurs, shifting LRAS to the right
What does full employment mean in the AD-AS model?
economy is producing at long-run equilibrium
How do wages and resources prices behave in the short run vs. the long run?
Sticky in short run, flexible in the long run
Why is understanding output gaps (inflationary or recessionary) important for fiscal policy makers?
Determines gov't spending or taxation to stabilize economy
The economy is currently in a recession but is starting to expand. When Real GDP starts to increase, what happens to unemployment benefits?
they start to decrease
What does Keynesian Economic Theory argue against about how the economy operates in the long run?
it argues that the economy will take too long to self-correct/stabilize, so government intervention is needed
When the economy is currently in a recession, what specific non-discretionary fiscal policy measures typically kick in for citizens?
Welfare and other social assistance programs like food stamps, use of transfer payments
If the economy starts at equilibrium, then GDP starts to drastically increase, what will happen in the long run in order to cool off the economy in regards to price level and GDP?
Prices will increase and GDP will draw back to equilibrium of LRAS
What specific actions can congress take when they enact expansionary policy?
gov't spending increases and or taxes are cut
What are the 4 main Discretionary Fiscal Policy actions that congress can do in order to speed up or slow down the economy?
1. Increase taxes
2. Decrease taxes
3. Increase government spending
4. Decrease government spending
Give me the full AD equation
AD = C + I(g) + G + (X-M)