Unit 5.1
Increasing government spending or decreasing the required reserve ratio are both this type of policy.
Expansionary
The Phillips Curve shows the relationship between these two things.
Inflation
Unemployment Rate
This is the formula for the Quantity Theory of Money (Monetary Equation of Exchange).
MV = PY
The government's main source or revenue comes from this.
Taxes
Economic growth can be shown by a shift of this curve on the AD-AS model.
Long-Run Aggregate Supply (LRAS)
The process of becoming or being made unlikely to change (or fail) is represented by this economic term.
Stabilization
A change in Aggregate Demand affects the Phillips Curve in this way.
Movement along the SRPC.
The velocity of money is explained as this.
How many times a dollar is used in a transaction in a given year.
The accumulation of annual deficits total what is known as a country's this.
National Debt
This is the main component of the Expenditure Approach that can effect long-term economic growth.
Investment Spending
With expansionary fiscal and contractionary monetary policies enacted simultaneously, interest rates will react in this way.
Interest Rates INCREASE
The Long-Run Phillips Curve (LRPC) represents this.
Natural Rate of Unemployment (NRU)
Full Employment
PY is also commonly known as this.
Nominal GDP
These two fiscal policies will lead to a deficit.
Increase Government Spending
Decrease Taxes
Economic growth and individual standard of living is measured by this metric.
Real GDP per Capita
When the money supply and government expenditures are reduced, Real GDP will react in this way.
Real GDP DECREASES
When there is a negative supply shock, the the Phillips Curve reacts in this way.
SRPC shifts to the right
DAILY DOUBLE!
In the long run, a decrease in the money supply will affect the price level and the level of output in these ways.
Price Level DECREASES
Output STAYS THE SAME
Government Spending leads to this phenomenon, which initially increases Aggregate Demand, but then pulls Aggregate Demand back.
Crowding Out
TRIPLE PLAY!
Capital Stock Formation is made up of these three components.
Physical Capital
Human Capital
Technology
Describe a combination of fiscal and monetary policies that would necessarily decrease AD, Real Output, and Price Level, while resulting Interest Rates would be indeterminate.
Contractionary Fiscal (decreases RIR)
Contractionary Monetary (increases NIR)
Draw the result of a positive demand shock on the Phillips Curve (with all labels).
Y-Axis = Inflation Rate
X-Axis = Unemployment Rate
Vertical LRPC (Labeled NRU on the X-Axis)
Initial Point on Convex SRPC1 (UR1 and INF1)
Movement of the point on the SRPC to the left (UR2 and INF2)
When there is an increase in the money supply, employment will react this way in the long run.
NO CHANGE
Explain the story of crowding out (assuming we start in a recessionary gap).
1). Increase Government Spending (AD shifts right)
2). Demand for Loanable Funds increases (RIR increases)
3). Investment and Interest-Sensitive Consumption decrease (AD shifts back left a bit)
4). Economic Growth decreases (less Capital Stock Formation)
These are two types of Supply Side Fiscal Policies.
Increase Spending on:
Education
Research and Development
Infrastructure
Reduce Income / Business Taxes