Long-run Consequences of Stabilization Policies Flashcards
Which combination of fiscal/monetary policy is ideal for increasing AD?
Expansionary fiscal, expansionary monetary
Which combination of fiscal/monetary policy is ideal for decreasing price level?
Contractionary fiscal, contractionary monetary
Which combination of fiscal/monetary policy is ideal for decreasing interest rates?
Expansionary fiscal, contractionary monetary
Define fiscal policy
Stabilization method to manipulate AD by changing spending and taxes
Define monetary policy
Stabilization method to manipulate AD by changing interest rates
What are on the axes of the Philip’s curve?
X: Unemployment rate
y: Rate of inflation
Which graph is related to the Philip’s curve?
Aggregate supply-demand graph
If the aggregate demand increases (AD positive shock), what happens in the Philip’s curve?
Upward movement along the SRPC
If SRAS increases, what happens in the Philip’s curve?
SRPC shifts downwards
What is one observable difference between AD and SRAS shock to the Philip’s curve?
SRAS shock shifts SRPC……. AD shock is movement along SRPC
What shifts the long-run Philip’s curve?
Structural and frictional unemployment
What is the Quantity Theory of Money?
In the long run, changes in money supply (MS) relates to proportional changes in price levels
Do changes in the MS have any effect on real variables long run?
No, JUST ON PRICE LEVEL!
Does expansionary fiscal policy lead to surplus or deficit?
Deficit: government spending increases and/or taxes decrease
Due to expansionary fiscal policy, which curve shifts in the loanable funds market?
Demand shifts to the right
