Chapter 11

Question 1

Say’s Law

Answer 1

Supply creates its own demand

Question 2

Potential GDP

Answer 2

Output is at its maximum given our inputs and techonolgy

Question 3

Real Business Cycle Theory

Answer 3

Which said that much of the business cycle comes from real shocks to productivity

Question 4

Animal Spirits

Answer 4

Irrationally pessimistic feelings

Question 5

Recessionary Gap

Answer 5

Difference between potential GDP and this recessionary equilibrium’s GDP

Question 6

Inflationary Gap

Answer 6

Difference between potential GDP and real GDP

Question 7

Fiscal Policy

Answer 7

Policy of using spending and taxes to cure inflationary and recessionary gaps

Question 8

Data-Lag

Answer 8

time it takes to realize a problem

Question 9

Legislative Lag

Answer 9

fighting in politics

Question 10

Transmission Lag

Answer 10

Time to execute

Question 11

effectiveness lag

Answer 11

does not instantly have its full effect

Question 12

Regime Uncertainty

Answer 12

confusion surrounding these shocks

Question 13

supply side economics

Answer 13

government reduces the cost of value creation thru production

Question 14

Permanent Income Hypothesis

Answer 14

in designing tax cuts

Question 15

marginal tax rates

Answer 15

those that change as income, investment, or the other desired value creation activities chang

Question 16

lump sum tax cut

Answer 16

Not affect her willingness to expand her practice

Question 17

broad based tax cuts

Answer 17

affect a wide range of economic activity

Question 18

targeted tax cuts

Answer 18

which only affect narrow categories activities that may or may not give incentives to create value

Question 19

Laffar Curve

Answer 19

shows the relationship between tax rates