AP Macro Aggregate Demand, Aggregate Supply, Fiscal Policy
Review for Chapters 10,11, and 12 of McConnell and Brue Economics
Terms in this set (28)
It is the formula for the spending multiplier.
It is the formula for the tax multiplier
value of balanced budget multiplier
(When an increase in spending is matched by an equal increase in taxes, the value of the increase is the amount of the government spending increase, because the multiplied effect is offset by the tax multiplier.)
It is the practical significance of the spending multiplier
Relatively small changes in spending are magnified into larger changes in GDP
Consumption, Investment, Government spending, Net Exports.
The are the determinants of aggregate demand.
1.Real balances (wealth) effect
2. Interest rate effect
3. foreign purchases effect
They are the reasons for the downward sloping aggregate demand curve.
It is the relationship shown in the AGGREGATE SUPPLY CURVE
The direct relationship between price level and real GDP/output
It is the state of the economy in the horizontal range of aggregate supply
It is the state of the economy in the upsloping/intermediate range of aggregate supply
It is the state of the economy in the vertical range of aggregate supply
Which would increase GDP by the greatest amount: a $100 million increase in government spending, or a $100 million decrease in lump sum taxes?
$100 spending increase, because the spending multiplier is greater than the tax multiplier
They are the shifters/determinants of aggregate supply
Input prices, productivity, and the legal/institutional environment
total output/total inputs
In other words, how much we get out of what we put in
It is the formula for productivity
It is the effect of a tax cut on aggregate supply
Taxes decrease, aggregate supply increases (and vice versa)
It is the effect of deregulation of an industry on aggregate supply
Deregulation = an increase in aggregate supply
monopoly power/market power
It is the ability of a firm to set its price(above a competitive rate)
It occurs when aggregate demand increases when GDP is at full employment
It is the term for inflation during a recession (stagnant economy)
These two government bodies carry out fiscal policy
Congress and the President
Fiscal policy that seeks to expand/increase real GDP
Fiscal policy that seeks to fight inflation during an expansion
They are the two tools of fiscal policy
taxing and spending
This budget situation occurs during expansionary policy (revenues down, spending up)
This budget situation occurs during contractionary policy (revenues up, spending down)
automatic fiscal policy
Entitlement programs and our marginal progressive tax system are examples of this type of fiscal policy measure.
discretionary fiscal policy
Specific government actions that increase or decrease taxes or spending measures are examples of this type of fiscal policy measure.
political business cycle
This term refers to the possibility that politicians might manipulate the economy to enhance their chances of reelection
crowding out effect
This term refers to higher than normal interest rates caused by heavy government borrowing that thus reduce investment spending