Exam 2 REEEEEEEE Flashcards
Non interest determinants of investmentment
1) bussiness expectations
2) level of economic activity
3) stock of capital in use
4) the cost of capital goods
5) technology
Factors that cause the aggregate demand curve to be downward sloping
1)interest rate effect
2) real balance effect
3) foreign purchase effec
Explain the interest rate effect
A change in demand caused by the impact of a price change in the interest rate IE higher price—higher interest rate—lower AD
Explain the real balance effect
A change in demand caused by the impact of price change on the value of wealth and savings IE higher price—lower value of savings—higher savings—lower consumption
Explain the foreign purchase effect
When the price falls, foreigners buy more US goods and vice versa
Factors that influence the levels of exports
a) Price levels in the U.S.
b) Price levels in other countries.
c) Income and prosperity in other countries.
d) Interest rates.
e) Exchange rate.
Benefits of increased GDP
a) Increases employment.
b) Increases government revenues.
c) Increases export revenues
d) Increases wages
Different stages of fiscal policy
a) Prior to the Great Depression: almost no fiscal policy
b) The Great Depression and WWII( government begins to use fiscalpolicies)
c) The Golden Age of Fiscal Policy (1960s) (Fiscal policies are applied atan unprecedented rate)
d) Reduced fiscal policy (1980s and 90s)
e) Increased use of fiscal policy (Bush and Obama)
Remember
Income and consumption are positively related. Disposable income is DI= C+S. Income is the main determinant of consumption.
Non income factors that affect consumption
a) Net Wealth.
b) Price level.
c) Interest Rate.
d) Expectations
Difference between automatic stabilizers and discretionary fiscal policies
a)Automatic stabilizers automatically adjust to help the economy.
b) Discretionary fiscal policy requires government action
What will go do to close expansionary and contractionary gaps
a) Government will close a contractionary gap by injecting money into the economy and increasing aggregate demand. This can be done through increased spending and tax cuts.
b) Government will close an expansionary gap by removing money from the economy and reducing aggregate demand. This can be done through reducing spending or increasing taxes.
