Whole Class
All, sum of
T of F: change in price levels alone can shift the AD/AS/LRAS curves
False.
Why is the LRAS curve vertical?
all prices and wages are fully flexible in the long run, any change in price levels is offset by input costs, allowing the economy to produce at its potential
When GDP is below optimal output with full employment (LRAS) and prices/wages are down, what period is this economy currently in?
A recessionary period
What non-discretionary fiscal policy measure typically turn on during recessionary periods and turn off during expansionary periods?
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
The same as the PPC!
To take action, to enact something
What is stagflation?
High inflation and stagnant economic growth
SRAS supply would decrease/shift to the left. Causing price to increase and GDP output to decrease.
What does full employment mean in the AD-AS model?
economy is producing at long-run equilibrium
What is the difference between classical and Keynesian Theories/approaches to economics?
Classical = government does not step in to help, the economy will self-adjust/fix itself in the long-run.
Keynesian = the government will use fiscal/monetary policies to adjust the economy back to equilibrium as soon as possible.
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
If there is increased business investment and new technology emerging in an economy, what would happen to AD, SRAS, and or LRAS?
AD = increase.
SRAS = increase.
LRAS = shift to the right.
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)