Chapter 18-20

Question 1

Supply-Side Policies

Answer 1

policies designed to increase long- run aggregate supply in the economy by increasing the quantity and / or quality of factors of production

Question 2

Goals of Supply-Side Policies

Answer 2

• achieve long-term economic growth by increasing the productive capacity of the economy
• improve competition and efficiency
• reduce labor costs and unemployment
• reduce inflation by shifting LRAS to the right
• increase firms incentives to invest with reduced costs

Question 3

Market Based SS Policies

Answer 3

policies that focus on allowing markets to operate more freely with minimal government intervention

Question 4

Interventionist SS Policies

Answer 4

policies that are based on the idea that the government has a crucial role to play in encouraging economic growth
- necessary as they support merit goods
- GOVERNMENT SPENDING

Question 5

Disposable Income

Answer 5

income remaining after taxes and other payments, available to be spent or saved as one wishes

Question 6

Tax-Credit

Answer 6

when the government offers for a firm to not pay taxes on profits from a certain type of sale like those made by R&D

Question 7

Unemployment

Answer 7

people of working age without work, available for work, and actively seeking employment

Question 8

Unemployment Rate

Answer 8

the percentage of people in the labor force that are unemployed

Question 9

Costs of Unemployment

Answer 9

• people themselves: less money, lower standard of living, high stress
• society: higher levels of crime, vandalism, homelessness, gang activity
• economy: decreasing output, less income by tax dollars, government must spend on unemployment benefits (opportunity cost)

Question 10

Natural Rate of Unemployment

Answer 10

seasonal, frictional, and structural unemployment

Question 11

Crowding Out

Answer 11

when governments run a budget deficit and run up interest rates of funds, decreasing investment by firms and “crowding them out”

Question 12

Frictional Unemployment

Answer 12

occurs when people are in between jobs, or when people have left education and are waiting to take up their first

Question 13

Seasonal Unemployment

Answer 13

occurs when jobs only operate within a given time frame each year and leave workers unemployed for the rest of the year

Question 14

Structural Unemployment

Answer 14

occurs when workers are either out of work due to their lack of skills in other areas of work or when work is out of their geographical reach

Question 15

Cyclical Unemployment

Answer 15

the type of unemployment associated with the cyclical downturns in the economy

Question 16

Labor Force

Answer 16

the pool of members in a country that are able to work

Question 17

Sticky Wages

Answer 17

when wages tend to not decrease along with the market as it would disincentive workers to work efficiently and / or work at all

Question 18

Hidden Unemployment

Answer 18

Discouraged workers, part-time workers, overqualified workers

Question 19

Inflows of Unemployment

Answer 19

• people who have lost their jobs
• people who have resigned
• people who have left school and have yet to find work
• people who are trying to find work after having left it
• people who immigrated to the country and haven’t found work

Question 20

Outflows of Unemployment

Answer 20

• people who find jobs
• people who retire
• people who go back into education
• people who choose to stay at home and care for their children
• people who emigrate to another country
• people who have given up looking for a job
• people who have passed away