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24 terms

MacroEconomics Chapter 11

STUDY
PLAY
Aggregate Demand
The Total quantity of output demanded at alternative price levels in a given time period
Aggregate Supply
The total quantity of output producers are willing and able to supply at alternative price levels in a given time period
Equilibrium (macro)
The combination of price level and real output that is compatible with both aggregate demand and aggregate supply.
Income transfers
Payments to individuals for which no current good or services are exhanged such as social security and welfare
Alter Aggregate demand by:
1. purchasing more or fewer goods and services.
2. Raising or lowering taxes
3. Changing the level of income transfers
Fiscal Policy
The use of Government taxes and spending to alter macroeconomic outcomes.
The Federal budget is a tool that can shift aggregate demand and thereby:
alter macroeconomic outcomes
Keynesian Perspective:
get someone to spend more on good and services
Fiscal Stimulus
Tax cuts or spending hikes intended to increase aggregate demand.
Aggregate Supply
The total quantity of output producers are willing and able to supply at alternative price levels in a given time period.
Rightward AD shift equal to the real GDP gap will leave the economy:
Short of full employment
When AD curve shifts to the right, the economy moves up the aggregate supply cruve, not:
Horizontally to the right. as a result both real output and the price level change.
As teh curve slopes upward, we must increase:
Aggregate demand by more than the size of the recessionary GDP gap in order to achieve full employment.
AD Shortfall
The amount of additional aggregate demand needed to
achieve full employment after allowing for price-level changes.
What is a form of fiscal stimulus?
Increased government spending.
Every dollar of new government spending:
has a multiplier impact on aggregate demand.
MPC
The fraction of each additioanl dollar of disposable income spent on consumption; teh change in consumpotion divided by the change in disposable income.
The impact of fiscal stimulus on AD includes both:
New govt. spending and all subsequent increases in consumer spending triggered by multiplier effects.
Disposable Income
After-tax income of consumers; personal income less personal taxes.
the efect of a tax cut that increase disposable income
is to stimulate consumer spending.
Intial Fiscal stimulus (AD shift) of increased transfer payment is
Injection= MPC X increase in transfer payments
Inflationary GDP gap
The amount by which equilibrium GDP exceeds full-employment GDP.
Budget cuts
should equal the size of the desired fiscal restraint.
Traxes must be increased
more than a dollar to get a dollar of fiscal restraint.