Chapter 16

Question 1

aggregate supply

Answer 1

the total value of goods and services that all firms would produce in a specific period of time at various price levels

Question 2

the aggregate supply curve

Answer 2

shows the amount of real GDP that could be produced at various price levels

Question 3

aggregate demand

Answer 3

the total quantity of goods and services demanded at different price levels

Question 4

the aggregate demand curve

Answer 4

a graph showing the quantity of real GDP that would be purchased at each possible price level in the economy

Question 5

macroeconomic equilibrium

Answer 5

the level of real GDP consistent with a given price level, as determined by the intersection of the aggregate supply and demand curves

Question 6

the economic costs of economic instability (4)

Answer 6

• stagflation
• the GDP gap
• the misery index
• uncertainty

Question 8

stagflation

Answer 8

a period of stagnant growth combined with inflation

Question 9

the GDP gap

Answer 9

the difference between the actual GDP and the potential GDP that could be produced if all resources were fully employed

Question 10

the social costs of economic instability (3)

Answer 10

• wasted resources
• political instability
• crime and family values

Question 11

the misery index

Answer 11

the sum of the monthly inflation and unemployment rates

Question 12

What can effect the aggregate supply curve?

Answer 12

Change in cost of production for the individual firm
^ cost of production = v aggregate supply
v cost of production = ^ aggregate supply

Question 13

What can effect the aggregate demand curve?

Answer 13

Change in prices
^ price = v aggregate demand
v price = ^ aggregate demand

Question 14

fiscal policy

Answer 14

the federal government’s attempt to stabilize the economy through taxing and government spending

Question 15

Keynesian Economics

Answer 15

a set of actions designed to lower unemployment by stimulating aggregate demand

Question 16

The Keynesian Framework

Answer 16

GDP = C + I + G + F

Question 17

multiplier

Answer 17

change in overall spending caused by a change in investment spending

Question 18

The 2 Different Roles of Government in Demand-side Policies

Answer 18

• direct role –> undertake its own spending to offset the decline in spending by businesses
• indirect role –> lowering taxes and enacting other measures to encourages businesses and consumers to spend more

Question 19

accelator

Answer 19

the change in investment spending caused by a change in total spending

Question 20

automatic stabilizers

Answer 20

programs that automatically trigger benefits if changes in the economy threaten income

Question 21

Supply-Side Economics

Answer 21

policies designed to stimulate output and lower unemployment by increasing production rather than demand

Question 22

What kind of role does the government have in Supply-Side Economics?

Answer 22

A small one, reduced number of federal agencies

Question 23

Laffer Curve

Answer 23

a hypothetical relationship between federal tax rates and tax revenues

Question 24

Monetarism

Answer 24

places primary importance on the role of money and its growth; neither demand-side nor supply-side places importance on it