5.1 + 5.2
The Phillips curve shows the inverse relationship between what two things?
Inflation and Unemployment
What is the PY of the quantity theory of money also represented as?
Nominal GDP
What occurs when tax revenues are more than government purchases and transfer payments?
Budget Surplus
How does crowding out happen?
Government Deficit Spending
What is Real GDP per capita?
Measure of the country’s average economic output per person
A leftward shift in the AD results in what on the Phillips curve?
Movement to the right along the SRPC
If the nominal GDP is 68 billion and the velocity of money is 4, what is the money supply?
17 billion
What is the difference between deficit spending national debt?
The deficit is an annual flow, while the national debt is a cumulative stock of accumulated debt.
What is one of the long-term consequences of crowding out?
Lower Productivity, Less Investments
What is ONE factor that can lead to economic growth?
Increase in land, labor, capital, entrepreneurship, technology.
We are in a recessionary economy. Should the central bank buy or sell bonds to restore long run equilibrium and where are we on the Phillips curve?
Buy bonds. The right of LRPC
What happens when the money supply grows faster than an economy’s real output?
More inflation
The national debt is equal to which of the following?
The sum of all past government budget deficits and surpluses
On a loanable funds market graph, how does persistent government budget surpluses used to pay down debt affect the demand curve and equilibrium real interest rate?
Demand curve shifts left, lowering the equilibrium real interest rate.
What is ONE way the government can increase capital stock?
government spends on: education, job training, infrastructure
tax credits for: education, job training, research and development, investment spending
The expected inflation rate increases. What change occurs on the philips curve?
SRPC shifts right
This is why lowering the federal funds rate increases AD.
Lower interest rates encourage spending and investment.
What are the three mandatory spending areas?
Social security, medicare, and interest on the national debt
How does a decrease in the real interest rate from government budget surpluses affect private investment and physical capital accumulation?
Private investment increases, leading to higher physical capital accumulation.
What is ONE criticism of supply-side fiscal policies?
Won’t decrease unemployment, won’t increase productivity, will lower investment spending, won’t affect economy, may harm workers, may not increase SRAS
How will expansionary fiscal and expansionary monetary policy paired together affect interest rates?
Indeterminate
If expansionary monetary policy has no long-run impact on real output, why do so many economists favor expansionary monetary policy when there is a recession?
Monetary policy can boost real output and unemployment in the short run.
How would automatic stabilizers in a recessionary gap affect the following: AD, Real GDP, Price Level, and National Debt (inc/dec)
AD: Decrease, Real GDP: Decrease, Price Level: Decrease, National Debt: Decrease
How can the Central Bank help reduce crowding out so that expansionary fiscal policy works better?
Central Banks use monetary policy to keep interest rates low by buying government bonds, which helps reduce crowding out.
A government increases deficit spending to build public infrastructure, but at the same time the central bank sells bonds to prevent inflation. In the long run, what happens to economic growth and why?
Growth will rise a little, because infrastructure boosts productivity.