Cycles Policy Flashcards
what are real GDP and overall price level viewed as
real world manifestations of equilibrium between aggregate demand and aggregate supply
aggregate demand
downward sloping because the real interest rate rises in response to an increase in the price level (also wealth effect)
how does wealth effect impact aggregate demand
compress budget and purchasing power of salary decreases
aggregate supply
upward sloping because factpr costs are sticky in short run so oroduction becomes more prfoittable when the price level rises
when is it more profitable to firms to produce
when prices are high
what is aggregate supply like in long run
verticalwh
what are recessions caused by
negative shocks to demand or supply
when is there an expansion
anytime there is not a recession
demand deficient
production falls b/c firms are pessimistic about their ability to sell products
symtpons of demand deficient
srpluses, downward price pressure
supply deficient
production falls b/c firms are unable to obtain necessary means of production
symptoms of supply deficient
shortages, upward price pressure
what recovered first after corona virus recession: demand or supply
demand
fiscal policy
any type of government spending or/or tax implemented by a countries fiscal authority
monetary policy
any action taken by a countrys moetary authority to steer the local economy (according to mandate)
who steers monetary policy
FED
what do most economists believe that fiscal and monetary policy are much more adept to infleunce: AS or AD
aggregate demadn
high interest rates make it _______ for firms to invest
harder
how does a fiscal contraction effect firms and HH
firms invest less and HH consume less
how does a fiscal expansion impact firms and HH
HH consume more and firms want to invest more
