Policy Mix
Contractionary Fiscal Policy combined with Expansionary Monetary Policy will definitely lower _______ ______.
Interest rates
The vertical axis of the Phillips curve indicates ______.
Inflation
The number of times a particular piece of money is spent in a given time (usually a year)
The Velocity of Money
A deficit occurs when ____________ exceeds _________.
Spending; Income
Economic Growth is illustrated graphically by a rightward shift of __________.
LRAS
(Also acceptable: PPC)
If both the Fed and the Government engage in Expansionary Policies, what will be the effect on Aggregate Demand?
Increase (Shift to the Right)
The Short Run Philips curve is ________ sloping due to the inverse relationship between inflation and unemployment.
Downward
Nominal GDP is $200 million and the Money supply is $50 million. What is the velocity of money?
4; MV=PY
How is DEBT different from a Deficit?
A deficit is a single year shortfall, debt is the accumulation of all past deficits.
The collective experience, education, talents, and skills of a population.
Human Capital
If the Fed buys bonds on the open market while the government decreases taxes, what gap are they probably trying to close?
Recessionary
The Long Run Phillips Curve is Vertical at the value of the ________ __________ of ___________.
Natural Rate of Unemployment
What do Monetarists believe is the most important factor in controlling inflation?
An appropriate money supply
When the government demand for loans has an unintended effect on the amount of private investment and interest sensitive spending.
Crowding Out
The Aggregate Production Function shows how more __________ ____________ per worker leads to an increase in Real GDP per Capita.
Physical Capital
What is the effect on the price level if the Fed decides to buy bonds while the government cuts its spending?
Indeterminant
Movement of Aggregate Demand causes what change in the equilibrium point on the SRPC?
Movement ALONG THE CURVE in the OPPOSITE DIRECTION.
If the velocity of money is 2 and the current real GDP is $30 billion, how will a 10% change in the Money Supply change REAL GDP?
It will have NO EFFECT on real gdp, only on the price level.
Most government spending is for projects, programs, and ___________ ____________.
Transfer Payments (Business Subsidies, Welfare, etc.)
What types of MONETARY Policy will lead to economic growth? Explain.
Keeping interest rates low. This will allow businesses to invest and expand, thereby increasing the potential output of the nation.
Give the policy options (Fiscal and Monetary) that would fight a rising price level.
Lower Spending, Increase Taxes, Sell Bonds, Raise Reserve Requirement, Raise Administered Interest Rates (Discount Rate and Interest on Reserves)
Supply Shocks (Changes to SRAS) change the Phillips curve in what way?
Shift the entire curve in the opposite direction.
Country X’s economy is currently at full employment. Assume Country X’s central bank increases the money supply by 2 percent over a prolonged period. According to the quantity theory of money, what will happen in the long run for any given velocity of money?
NOMINAL output will increase by 2%
One major negative consequence of government borrowing and debt is that future budgets must now account for paying ____________, meaning less money for projects and programs.
Interest
What type of FISCAL policies will encourage long run economic growth?
Answers vary:
Spending on Education; Building up infrastructure; Encouraging R&D, Ensuring Property Rights, Lowering Tax Rates (especially on business), etc.