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| 6430591592 | Aggregate | "Added all together" We combine all prices and all quantities | 0 | |
| 6430591593 | Aggregate Demand | All the goods and services (real GDP) that buyers are willing and able to purchase at different price levels | 1 | |
| 6430591594 | The Wealth Effect | Higher price levels reduce the purchasing power of money and decreases the quantity of expenditures and vice versa | 2 | |
| 6430591595 | The Interest Rate Effect | When the price level increases, lenders need to charge higher interest rates to get a REAL return on their loans Higher interest rates decrease C and I spending | 3 | |
| 6430591596 | Foreign Trade Effect | When the United States's prices increase, foreign buys purchase fewer U.S. goods and Americans buy more foreign goods Exports down, imports up, real GDP down | 4 | |
| 6430591597 | What definitely doesn't shift the AD curve? | Price | 5 | |
| 6430591598 | Shifters of Aggregate Demand | C + I + G + Xn | 6 | |
| 6430591599 | Shifter: Change in Consumer Spending | -Increase in disposable income -Consumer expectations -Household indebtedness -Taxes | 7 | |
| 6430591600 | AD Shifter: Change in Investment Spending | -Real interest rates (prices of borrowing money) -Future business expectations -Technology | 8 | |
| 6430591601 | AD Shifter: Change in Government Spending | Government expenditures | 9 | |
| 6430591602 | AD Shifter: Net Exports | -Exchange rates -National income compared to abroad | 10 | |
| 6430591603 | Aggregate Supply | The amount of goods and services (real GDP) that firms will produce in an economy at different price levels | 11 | |
| 6430591604 | Short Run Aggregate Supply | Wages and resource prices will not increase as price levels increase Curved/upwards sloping | 12 | |
| 6430591605 | Long Run Aggregate Supply | Wages and resource prices will increase as price levels increase Straight line Producing at full employment | 13 | |
| 6430591606 | Shifters in Aggregate Supply | R A P | 14 | |
| 6430591607 | AS Shifter: Change in Resource Prices | -Prices of domestic and imported resources -Supply shock -Inflationary expectations | 15 | |
| 6430591608 | AS Shifter: Change in Actions of the Government | -Taxes on producers -Subsides for domestic products -Government regulations | 16 | |
| 6430591609 | AS Shifter: Change in Productivity | -Technology -Labor (more skilled workforce, etc.) | 17 | |
| 6430591610 | Inflationary Gap | In the long run, wages increase and SRAS decreases Output is high and unemployment is less than the NRU |  | 18 |
| 6430591611 | Recessionary Gap | In the long run, wages decrease and SRAS increases Output is low and unemployment is more than NRU |  | 19 |
| 6430591612 | Stagflation | Stagnate economy and inflation | 20 | |
| 6430591613 | Capital Stock | Machinery and tools purchased by businesses that increase their output Only investment causes growth since firms increase their capital stock | 21 | |
| 6430591614 | Classical Theory | 1. A change in AD will not change output even in the short run because prices of resources (wages) are very flexible 2. AS is vertical so AD can't increase without causing inflation No government involvement needed (will make prices go up) Recessions caused by a fall in AD are temporary Graph is vertical at physical capacity | 22 | |
| 6430591615 | Keynesian Theory | 1. A decrease in AD will lead to a persistent recession because prices of resources (wages) are NOT flexible 2. Increase in AD during recession doesn't cause inflation "Sticky wages" prevent wages from falling Government can increase spending to close the gap Graph is horizontal at low output | 23 | |
| 6430591616 | The Phillips Curve shows the trade off between... | Inflation and unemployment | 24 | |
| 6430591617 | What is the relationship between unemployment and inflation? | Inverse | 25 | |
| 6430591618 | What happens when AS falls causing stagflation? | Increase in unemployment and inflation | 26 | |
| 6430591619 | What happens to the SRPC if AD shifts? | AD increase, move up SRPC AD decrease, move down SRPC | 27 | |
| 6430591620 | If GDP increases what happens to unemployment? | Decreases | 28 | |
| 6430591621 | If GDP decreases what happens to unemployment? | Increases | 29 | |
| 6430591622 | Autonomous Consumption | Consumers will spend a certain amount no matter what, regardless of their income (necessities) | 30 | |
| 6430591623 | Disposable Income | Income after taxes | 31 | |
| 6430591624 | Dissaving | If incomes are less than autonomous spending | 32 | |
| 6430591625 | How does the government stabilize the economy? | 1. Fiscal Policy: Actions taken by congress to stabilize the economy 2. Monetary Policy: Actions by the Federal Reserve Bank to stabilize the economy | 33 | |
| 6430591626 | Contractionary Fiscal Policy | (BRAKE) Laws that reduce inflation, decrease GDP (close inflationary gap) Decrease government spending Increase Taxes | 34 | |
| 6430591627 | Expansionary Fiscal Policy | (GAS) Laws that reduce unemployment, increase GDP (close recessionary gap) Increase government spending Decrease taxes | 35 | |
| 6430591628 | Discretionary Fiscal Policy | Congress creates a new bill that is designed to change AD through government spending or taxation Problem = time lags/takes time Ex. Congress increasing spending | 36 | |
| 6430591629 | Non-Discretionary Fiscal Policy | Legislation that acts counter cyclically without explicit action by policy makers Automatic stabilizers Permanent spending or taxation laws enacted to work counter cyclically to stabilize the economy Ex. welfare, unemployment, minimum wage Ex. When high unemployment, the unemployment benefits is paid to citizens to increase consumer spending | 37 | |
| 6430591630 | The more progressive the tax system, what is greater in the economy? | The greater the economy's built-in stability | 38 | |
| 6430591631 | Multiplier Effect | Shows how spending is magnified in the economy If they save a lot, spending and AD will increase a little If they save a little, spending and AD will increase a lot | 39 | |
| 6430591632 | Marginal Propensity to Consume (MPC) | How much people consume rather than save when there is a change in income (change in consumption)/(change in income) | 40 | |
| 6430591633 | Marginal Propensity to Save (MPS) | How much people save rather than consume when there is a change income (change in savings)/(change in income) | 41 | |
| 6430591634 | MPC + MPS = | 1 | 42 | |
| 6430591635 | Total change in GDP for Government Spending = | Multiplier (Ms) x Initial change in Spending | 43 | |
| 6430591636 | Spending Multiplier = | (1/MPS) | 44 | |
| 6430591637 | Does changing taxes have a greater or lesser of an I'm pact than government spending? | Lesser | 45 | |
| 6430591638 | Simple Tax Multiplier = | Spending Multiplier (Ms) - 1 | 46 | |
| 6430591639 | Total Change in GDP for Tax Changes = | Tax Multiplier (Mt) x Initial Change in Taxes | 47 | |
| 6430591640 | 5 Problems with Fiscal Policy | 1. Deficit spending 2. Problems of timing 3. Politically motivated policies 4. Crowding-out effect 5. Net export effect | 48 | |
| 6430591641 | Budget Deficit | When the government's expenditures exceeds its revenue | 49 | |
| 6430591642 | National Debt | The accumulation of all the budget deficits over time If the government increases spending without increasing taxes they will increase the annual deficit and national debt | 50 | |
| 6430591643 | Problems of Timing | 1. Recognition Lag: Congress must react to economic indicators before its too late 2. Administrative Lag: Congress takes time to pass legislation 3. Operational Lag: Spending/planning takes time to organize and execute (changing taxing is quicker) | 51 | |
| 6430591644 | Politically Motivated Policies | Politicians may use economically inappropriate policies to get reelected | 52 | |
| 6430591645 | Crowding-Out Effect | Government spending may cause unintended effects that weaken the impact of the policy | 53 | |
| 6430591646 | Net Export Effect | International trade reduces the effectiveness of fiscal policies | 54 | |
| 6430591647 | Supply Side Policies | Primarily based on idea that tax rates were too high, which affects incentives to work, save and invest Policy was to reduce marginal tax rates and encourage savings and investment to shift aggregate supply | 55 | |
| 6430591648 | Reaganomics | Reagan proposed a phased 30% tax cut for the first three years of his presidency. The bulk of those tax cuts would be concentrated at the upper income levels His belief was that tax relief for the rich would enable them to spend and invest more, and that this new spending would stimulate the economy and create new jobs | 56 | |
| 6430591649 | Criticisms of Supply Side Policies | Lower taxes will increase aggregate demand way more than they will increase aggregate supply | 57 | |
| 6430591650 | The Laffer Curve | Tax rate and tax revenue graph |  | 58 |
