ADAS Model
The aggregate demand of these 4 components of spending in the economy (Hint: It's the same as GDP)
What are consumption, investment, government, and net exports?
This term describes a short-term economic downturn marked by a fall in real GDP and rising unemployment.
What is a recession?
This term refers to when the government spends more than it collects in revenue during a single fiscal year.
What is a budget deficit
This type of money has no intrinsic value and is not backed by a physical commodity.
What is Fiat money?
This is the term for the total value of exports minus the total value of imports.
What is the trade balance or net exports?
This effect explains why the aggregate demand curve slopes downward due to changes in purchasing power.
(Hint: this is the changing of actual money people have)
What is the wealth effect?
This 1930s U.S. law raised tariffs, leading to a global trade war and a decline in U.S. exports.
(Hint: Ever seen Ferris Bueller's Day Off?)
What is the Smoot-Hawley Tariff Act?
These outlays make up over 60% of U.S. government spending and are required by existing laws until those laws are changed.
What are mandatory outlays?
What is the tool banks use to make money from loans?
What are interest rates?
This economic principle says that countries should produce goods for which they have the lowest opportunity cost.
What is comparative advantage?
What are the 3 elements of the LRAS line?
What are resources, institutions, and technology?
This school of economic thought believes markets will self-correct over time due to flexible prices and wages.
What is classical economics?
This fiscal policy tool is used to stimulate the economy during a recession by either increasing spending or lowering taxes.
What is expansionary fiscal policy
This is the percentage of deposits that banks keep on hand and not loan out.
What are reserve ratios?
These are the two most common forms of protectionism used to limit imports.
What are tariffs and quotas?
This line is unaffected by the change of price level in the ADAS model
What is the LRAS?
A significant drop in this component of the aggregate demand formula primarily caused the Great Depression.
This concept explains how an initial change in spending leads to a greater overall impact on the economy.
What is the spending multiplier?
This process allows banks to increase the money supply without printing new money, starting with customer deposits and resulting in loans.
What is money creation?
This trade pattern has been consistent for the U.S. since the 1970s, especially in goods, where we import more than we export.
What is a trade deficit
These three factors explain why the short-run aggregate supply curve has a positive slope.
What are sticky input prices, menu costs, and money illusion?
This theory holds that wages are slow to adjust downward, preventing labor markets from reaching equilibrium and prolonging unemployment.
What is Keynesian economics/cyclical unemployment?
This curve illustrates the relationship between tax rates and tax revenue, showing that at a certain point, higher taxes can lead to less revenue.
What is the Laffer curve?
This Federal Reserve tool involves buying or selling short-term government securities to influence the money supply.
What are open market operations?
This term refers to a foreign company selling goods below their domestic prices to flood another country’s market.
What is dumping?