AP Economics Mod 16-21 - Assignment Essays

question

Fiscal policy

answer

Actions by Congress and by the President through taxation and government spending

question

Monetary Policy

answer

Actions by the Federal Reserve Bank through decreasing interest rates and federal reserve rates

question

Expansionary Fiscal Policy

answer

Laws that reduce unemployment and increase GDP by increasing government spending and/or decreasing taxes on consumers

question

contractionary fiscal policy

answer

Laws that reduce inflation and decrease GDP by decreasing government spending and/or enacting tax increases

question

direct fiscal policy

answer

changes in government spending of final goods

question

indirect fiscal policy

answer

a change in taxes and transfers to households

question

Monetary Policy Changes to AD curve

answer

1. Federal Reserve Bank's changes in the quantity of money or interest rates will shift the curve
2. Increasing the quantity of money shifts the AD curve to the right
3. Reducing the quantity of money supply will shift AD curve to the left.

question

Discretionary fiscal policy

answer

Congress creates a law designed to change AD through govn't spending or taxation but time lags due to bureaucracy

question

Non-Discretionary Fiscal Policy

answer

automatic stabilizers; permanent spending or taxation laws enacted to work counter cyclically to stabilize the economy

question

Marginal Propensity to Consume (MPC)

answer

the increase in consumer spending when disposable income rises by $1
= Change in consumer spending/Change in income

question

Marginal Propensity to Save (MPS)

answer

the increase in household savings when disposable income rises by $1
=Change in savings/Change in income

question

The multiplier

answer

the ratio of the total change in real GDP caused by an autonomous change in aggregate spending
The higher the MPC the higher the multiplier (the more money spent, the greater impact the multiplier will have).

question

autonomous change in aggregate spending

answer

an initial rise or fall in aggregate spending that is the cause, not the result, of a series of income and spending changes

question

Change in GDP formula

answer

multiplier x initial change in spending

question

Multiplier formula

answer

1/MPS or 1/1-MPC

question

Consumption function

answer

the relationship between consumption spending and disposable income
=a+MPCxYd a= autonomous spending Yd= disposable income

question

2 factors that change Aggregate Consumption Function

answer

1. Changes in expected future disposable income: permanent income hypothesis (Milton Friedman, "Theory of the Consumption Function")
2. Changes in aggregate wealth: life-cycle hypothesis

question

Shifters of Aggregate Demand

answer

1. Consumer Spending
2. Investment Spending
3. Government Spending
4. Net Exports (Exports - Imports)
AD=C+I+G+X

question

Shifters of Aggregate Supply

answer

1. Change in Inflationary Expectations: If an increase in AD leads people to expect higher prices in the future, this increases labor and resource costs and decreases AS.
2. Change in Resource Prices: Supply shocks
3. Change in Actions of the government (NOT spending): taxes, subsidies, regulations
4. Change in Productivity
AS= I+R+A+P

question

Supply shock

answer

An unexpected event that causes the short-run aggregate supply curve to shift

question

Recessionary Gaps, Inflationary Gaps or Stagflation

answer

Shocks cause a shift in the aggregate demand or supply and can lead to this

question

Recessionary Gap

answer

when aggregate output is below potential output

question

Inflationary Gap

answer

when aggregate output is above potential output

question

Accounts for 2/3 of our GDP

answer

consumer spending

question

Investment spending

answer

spending on new productive physical capital, such as machinery and structures, and on changes in inventories.
Not as large as a piece of the GDP as consumer spending
Rising inventories typically indicates a slowing economy and vice-versa

question

Planned investment spending

answer

Depends on three factors:
1. interest rates
2. Expected future GDP
3. Current level of production capacity

question

Relationship between price level and Real GDP

answer

inverse
If price level increases (inflation) then real GDP demanded falls
If price level decreases (deflation) then real GDP demanded increases

question

Law of Demand

answer

Higher prices = less demand

question

Explain why demand is downward sloping

answer

Lower prices = greater quantity demanded

question

Identity a difference between a change in demand and a change in the quantity demanded

answer

Shift in curve= change in demand
movement along the curve (prices)= change in quantity demanded

question

Define the law of supply

answer

price and quantity supply have a direct relationship

question

Why is supply upward sloping?

answer

At higher prices, profit seeking firms have an incentive to produce more
higher prices=greater quantity supplied

question

What does it mean if there is a perfectly inelastic supply curve

answer

Occurs when quantity is not affected by change in price

question

3 reasons why the aggregate demand curve slopes downward

answer

1. Wealth effect
2. Interest-Rate Effect
3. Foreign Trade Effect

question

Wealth Effect

answer

The tendency for people to increase their consumption spending when the value of their financial and real assets rises and to decrease their consumption spending when the value of those assets falls.
Higher prices decreases purchasing power of money and decreases quantity of expenditures and vice-versa

question

Interest Rate Effect

answer

As price levels increases, lenders need to charge higher interest rates to get a REAL return on their loans; higher interest rates discourage consumer spending and business investment

question

Foreign Trade Effect

answer

When U.S. price level rises, foreign buyers purchase fewer U.S. foods and Americans buy more foreign goods.

question

Short Run Aggregate Supply

answer

Wages and resources prices will NOT increase as price levels increase.

question

Long Run Aggregate Supply

answer

wages and resource prices will increase as price levels increase

question

Output Gap

answer

the % difference between actual aggregate output and potential output
(Actual Aggregate output-potential output)/potential output

question

The most important factor affecting a household's consumer spending is:

answer

expected future disposable income

question

The modern tools of macroeconomic policy

answer

Fiscal and discretionary policy

1 of 42

question

Fiscal policy

answer

Actions by Congress and by the President through taxation and government spending

question

Monetary Policy

answer

Actions by the Federal Reserve Bank through decreasing interest rates and federal reserve rates

question

Expansionary Fiscal Policy

answer

Laws that reduce unemployment and increase GDP by increasing government spending and/or decreasing taxes on consumers

question

contractionary fiscal policy

answer

Laws that reduce inflation and decrease GDP by decreasing government spending and/or enacting tax increases

question

direct fiscal policy

answer

changes in government spending of final goods

question

indirect fiscal policy

answer

a change in taxes and transfers to households

question

Monetary Policy Changes to AD curve

answer

question

Discretionary fiscal policy

answer

Congress creates a law designed to change AD through govn't spending or taxation but time lags due to bureaucracy

question

Non-Discretionary Fiscal Policy

answer

automatic stabilizers; permanent spending or taxation laws enacted to work counter cyclically to stabilize the economy

question

Marginal Propensity to Consume (MPC)

answer

the increase in consumer spending when disposable income rises by $1
= Change in consumer spending/Change in income

question

Marginal Propensity to Save (MPS)

answer

the increase in household savings when disposable income rises by $1
=Change in savings/Change in income

question

The multiplier

answer

question

autonomous change in aggregate spending

answer

an initial rise or fall in aggregate spending that is the cause, not the result, of a series of income and spending changes

question

Change in GDP formula

answer

multiplier x initial change in spending

question

Multiplier formula

answer

1/MPS or 1/1-MPC

question

Consumption function

answer

the relationship between consumption spending and disposable income
=a+MPCxYd a= autonomous spending Yd= disposable income

question

2 factors that change Aggregate Consumption Function

answer

1. Changes in expected future disposable income: permanent income hypothesis (Milton Friedman, "Theory of the Consumption Function")
2. Changes in aggregate wealth: life-cycle hypothesis

question

Shifters of Aggregate Demand

answer

1. Consumer Spending
2. Investment Spending
3. Government Spending
4. Net Exports (Exports - Imports)
AD=C+I+G+X

question

Shifters of Aggregate Supply

answer

question

Supply shock

answer

An unexpected event that causes the short-run aggregate supply curve to shift

question

Recessionary Gaps, Inflationary Gaps or Stagflation

answer

Shocks cause a shift in the aggregate demand or supply and can lead to this

question

Recessionary Gap

answer

when aggregate output is below potential output

question

Inflationary Gap

answer

when aggregate output is above potential output

question

Accounts for 2/3 of our GDP

answer

consumer spending

question

Investment spending

answer

question

Planned investment spending

answer

Depends on three factors:
1. interest rates
2. Expected future GDP
3. Current level of production capacity

question

Relationship between price level and Real GDP

answer

inverse
If price level increases (inflation) then real GDP demanded falls
If price level decreases (deflation) then real GDP demanded increases

question

Law of Demand

answer

Higher prices = less demand

question

Explain why demand is downward sloping

answer

Lower prices = greater quantity demanded

question

Identity a difference between a change in demand and a change in the quantity demanded

answer

Shift in curve= change in demand
movement along the curve (prices)= change in quantity demanded

question

Define the law of supply

answer

price and quantity supply have a direct relationship

question

Why is supply upward sloping?

answer

At higher prices, profit seeking firms have an incentive to produce more
higher prices=greater quantity supplied

question

What does it mean if there is a perfectly inelastic supply curve

answer

Occurs when quantity is not affected by change in price

question

3 reasons why the aggregate demand curve slopes downward

answer

1. Wealth effect
2. Interest-Rate Effect
3. Foreign Trade Effect

question

Wealth Effect

answer

question

Interest Rate Effect

answer

As price levels increases, lenders need to charge higher interest rates to get a REAL return on their loans; higher interest rates discourage consumer spending and business investment

question

Foreign Trade Effect

answer

When U.S. price level rises, foreign buyers purchase fewer U.S. foods and Americans buy more foreign goods.

question

Short Run Aggregate Supply

answer

Wages and resources prices will NOT increase as price levels increase.

question

Long Run Aggregate Supply

answer

wages and resource prices will increase as price levels increase

question

Output Gap

answer

the % difference between actual aggregate output and potential output
(Actual Aggregate output-potential output)/potential output

question

The most important factor affecting a household's consumer spending is:

answer

expected future disposable income

question

The modern tools of macroeconomic policy

answer

Fiscal and discretionary policy

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order