Economics Ch. 11-12

  1. Aggregate Demand:
    the total amount of a product that will be bought at a certain price level
  2. Real Balances Effect
    higher price levels mean less consumption spending
  3. Interest Rate Effect
    increased demand for prices and the interest rate, increase price level reduces the amount of products demanded
  4. Foreign Purchases Effect
    increase in price and decrease in quantity of U.S. goods demanded as net exports
  5. Aggregate Supply Curve
    reflects what happens to the per unit production cost as GDP expands/contracts
  6. Parts of Aggregate Supply Curve
    Horizontal range (econ in recession), intermediate range, vertical range (econ reaches full capacity)
  7. Fiscal Policy
    deliberate changes in government spending and tax collections to achieve employment, control inflation, and encourage economic growth
  8. Employment Act of 1946
    Committed the federal government to providing job opportunities and maintaining economic stability
  9. Budget Surplus
    tax revenues in excess of government spending
  10. Two Ways the Govt Finances a Deficit
    • - borrowing from the public
    • - money creation
  11. How to Reduce Debt
    • - govt buys bonds
    • - impounding
  12. Net Taxes
    Tax revenues - transfers & subsidies
  13. Built in Stabilizer
    Anything that increases the govts budget deficit during a recession and increases budget surplus during inflation
  14. Progressive Tax System
    The average tax rate goes up with GDP
  15. Regressive Tax System
    average tax rate decreases as GDP rises
  16. The more progressive the tax system the higher the stability.
  17. Full-Employment Budget (Standardized Budget)
    Used to adjust the actual federal budget deficits/surpluses to eliminate the automatic changes to tax revenues
  18. Three Problems of in Determining Fiscal Policy
    Recognition lag, administrative lag, and operational lag.
  19. Political Business Cycle
    when politicians manipulate fiscal policy to maximize voter support, even though their fiscal decisions destabilize the economy
  20. Crowding Out Effect
    deficit spending increases interest rate and reduces private spending and weakens/cancels out stimulus of expansionary policy
  21. Two Parts of Net Export Effect
    Expansionary Fiscal Policy and Contractionary Fiscal Policy
  22. Expansionary Fiscal Policy
    decrease in net exports
  23. Contractionary Fiscal Policy
    increase in net exports
  24. Supply Side Fiscal Policy
    as taxes decrease the aggregate supply curve shifts right which negates inflation and increases economic growth
  25. Three Reasons for Supply Side Economics
    • - savings/investments
    • - work incentives
    • - risk taking
Card Set
Economics Ch. 11-12