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fiscal policy

govt uses taxation and spending actions to stimulate economy


fed govt cuts taxes and increases spending to stimulate economy

Council of Economic Advisors

direct responsibility for providing analysis, advice and assistance to the US pres on economic matters

contractionary fiscal policies

increased taxation and decreased govt spending

automatic stabilizer

as real GDP falls, income tax revenues, decrease and transfer payments increase

Federal Budget Deficit

fed govt spending exceeds tax revenues

public debt

sum of all previous budget deficits minus any budget surpluses on the Fed govt

potential problem of public debt

lead to added taxes that reduce economic incentives

aggregate demand curve

inverse relationship between the price level and real GDP purchased

increase in the price level

a decline in the quantity of real output demanded along the aggregate demand curve is a result of an

decrease in aggregate demand

an increase in taxes on consumers will most likely cause a

increase aggregate demand

an expected rise in the rate of inflation for consumer goods

the tax rates on household income

an increase in aggregate demand is most likely to be caused by a decrease in:

an increase in personal income tax rates

which set of events would most likely decrease aggregate demand?

decrease in aggregate demand

a decrease in govt spending will cause a

aggregate demand decreases

if the dollar appreciates in value relative to foreign currencies

price level

movement along the aggregate demand curve would be caused by a change in:

AD curve shift left

an appreciation in the value of the US dollar

AS curve

level of real domestic output which will be produced at each possible price level

short run AS curve

direct relationship between the price level and real GDP produced

an aggregate supply determinant

a change in aggregate supply would be caused by a change in:

supply curve rightward

a fall in the price of capital goods will shift the aggregate

prices of imported resources

most likely shift aggregate supply curve

raising taxes on businesses

increase per-unit production costs and thus decrease aggregate supply

increase aggregate supply

decrease in prices of resources would most likely,

long run

period in which nominal wages change as the price level changes

short run

period in which nominal wages do not respond as the price level changes

LR AS curve

graph is vertical

SR AS curve

graph is upsloping

equilibrium level of real domestic output and prices

the intersection of the aggregate demand and aggregate supply curves determines the:

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