Fiscal/Monetary Policy
This type of gap exists when equilibrium is to the right of LRAS
Inflationary
The Phillips curve shows a relationship between which two things?
Inflation rate & Unemployment rate
This is policy controlled by the central bank
Monetary Policy
What is it called when the government spends more than it is bringing in?
Deficit spending
What is the formula to calculate GDP per capita?
GDP/ Population
If the economy is in a recession what 3 choices can be made to fix it?
1. DO nothing
2. Fiscal Policy
3. Monetary Policy
When inflation is low, what is unemployment?
High
How does an increase in the money supply impact AD?
AD will shift to the left
When is there a balanced budget?
G = T
If the government invests in new technology to increase productivity what will happen to the PPF and LRAS curves?
They will both shift outward (right)
What type of policy is it if the government spends money to increase AD.
Expansionary Fiscal
A recessionary gap equals what type of movement along the Phillips curve?
DOWN
What happens to GDP in the long run if the money supply is increased?
No real change
When is there a budget surplus?
When G < T
What is "the value of a worker's skills & knowledge" called?
Human capital
What type of policy is it if the central bank increases the money supply?
Monetary
What impact does a negative supply shock have on the SRPC?
The SRPC will shift up
Which type of policy helps fix economic conditions in the long run?
Fiscal Policy
When crowding out occurs, what impact does this have on private investment?
Private Investment falls due to lack of loanable funds and an increase in the interest rate
The government reduces taxes on businesses
What type of policy is this?
What will happen in the AD-AS model?
1. Expansionary fiscal
2. AD will shift right
Give an example of fiscal policy used during an inflationary gap
The government would decrease spending to decrease AD
The government would increase taxes to decrease AD
Inflationary gap
Fill in the missing piece of information:
MS increase--> ____ --> I up --> C up --> AD increases --> GDP increases --> PL increases
interest rate down
The budget deficit usually grows when the economy is in this part of the business cycle
Recession/Trough
What is an example of a supply side fiscal policy that could stimulate economic growth?
Reduce Taxes for businesses
Increase G (infrastructure)
Invest in human capital