28 Keynseian Model-Using Fiscal and Monetary Policy Flashcards
Cyclical unemployment equals this
value when actual output is equal to
potential output.
0
In 1973, a shortage of petroleum and higher prices of gasoline shifted the short-run aggregate supply curve in this direction.
leftward
In the United States, the aggregate price level has followed an upward trend since this historical event.
World War II
In the Keynesian model, an increase in money supply shifts the aggregate demand curve in this direction.
Rightward
This term refers to increased
government spending.
expansionary fiscal policy
Fiscal policy can be used to increase spending through these types of actions.
tax cuts
This economic organization can vary the money supply to control the interest rate.
Federal Reserve
Economists can calculate initial estimates of GDP in about this number of months.
3
Most economists believe that these types of policies are counterproductive
in mitigating the effects of a recession.
Activist
At any point, the Keynseian model implies that the country’s aggregate production and price level are determined by
the intersection of AD and AS
When is the output gap zero?
When actual output is equal to its potential
Above potential output is a
positive aggregate demand shock
Covid, an example of a negative aggregate demand schock occured in the US in
Febuary 2020
After, consumption and business investment fell sharptly what was the response that moderates the impact of the shift in consumer sentiment.
Aggregate price level declines (some businesses lower their prices to get more business)
The OPEC oil embargo occurred in
1973
What are the two various of negative aggregate schocks
AD/AS
Why do recessions and expansions occur?
The sequence of unpredictable shcocks to aggregate demand or aggregate supply that strike the economy and caus the equilbrium of production to move from its potential (sticky prices lead to slow adjustments)
What is short run?
the period of time in which the performance of the economy deviates from the prediction from the long run model
Approximately range of short run
1 to 3 years
What odes it mean to draw recessions and expansions assuming thelevel of inlation in the economy was zero.
aggregate Price Level is stable
In the Aggregate demand-Aggregate supply model, an increase in the money supply causes the AD curve to
shift to the right.
What heppens to the AS curve if people have become accustomed to an increasing money supply and rising prices
price elvel will rise each year, and the AS^SR/SRAS will shift upward so that AD and SRAS intersect at the country’s potential output
What did Lyndon Johnson do in the 1960s?
Started a military buildup, choosing to finance it through borrowing because it is afriad that increased taxes will be upopular. Roughly what happened in the 1960s un der President Lyndon Johnson.
In AD/AS models, changes in aggregate prices it indicates are unaticipated deviations from the prevailing and expected rate of inflation.
The main argument in faor using monetary or fiscal policy to stabilize the conomy is that deviations ot actual output from potential output are csotly. In recessions, when some resources are not fully employed, the economy froever loses the
output that these resources could have produced
Two reasons why fiscal/monetary policy invterventions desriability are controversal
The difficulty of identifying preciesly what the conomy’s potential output is.
Also the praticality of carrying out such fiscal and monetary policy effectively
It takes about (how long) to calculate the first estimates of GDP, which are subject to substatial revision over the next few months as addiitional data becomes available.
3 months
