Macroeconomics Unit 3

Question 1

Shifters of AD

Answer 1

C+I+G+Xn

Question 2

Spending Multiplier

Answer 2

An initial change in spending causes a ripple effect for the entire economy and leads to more total spending

Question 3

MPC

Answer 3

How much people consume rather than save when there is a change in disposable income

Question 4

MPS

Answer 4

How much people save rather than consume when there is a change in disposable income

Question 5

Equation for Spending Multiplier

Answer 5

1
_____

1 - MPC

Question 6

Equation for Tax Multiplier

Answer 6

MPC
______

MPS

Question 7

Shifters of AS

Answer 7

Change in price of resources (Wood becomes more expensive)
Actions by the government (Subsidies)
Change in productivity (Change in Tech) Change in Inflationary expectations

Question 8

Capital Stock

Answer 8

Machinery and tools purchased by businesses that increase their output

Question 9

Negative Supply Shock

Answer 9

Unexpected decrease in the avalibitly of a key resource causes a decrease in AS

Question 10

Positive Supply Shock

Answer 10

Unexpected increase in the avalibitly of a key resource causes a increase in AS

Question 11

Does Price Level shift supply

Answer 11

A change in price level does not shift supply but a change in expected price level does shift supply (People will respond to the increase in Price Level, if inflation is expected then the cost of resources and wages will go up)

Question 12

What happens during self-adjustment

Answer 12

Only AS shifts back to LRAS not AD

Question 13

Shifters of the LRAS

Answer 13

Labor changes, capital changes, natural resources, and technology changes. Permanent changes. Investment!!

Question 14

Equation for Tax cut needed

Answer 14

Amount of gap / Tax Multiplier

Question 15

Equation for Tax Multiplier

Answer 15

MPC/MPS

Question 16

Cost Push Inflation

Answer 16

AS shifts to left causing PL to go up, less of a resource forces producers to up prices

Question 17

Demand Pull Inflation

Answer 17

AD shift to right causing PL to go up, people are buying more and more good, but since there are so many goods produced, its going to increase the price. If more people want something and they cant get it there going to big up prices

Question 18

Automatic Stablizers

Answer 18

Permanent spending or taxation laws enacted to work counter cyclically to stabilize the economy

Question 19

Contractionary Fiscal Policy

Answer 19

Laws that reduce inflation, decrease GDP, decreases government spending, increases taxes

Question 20

Expansionary Fiscal Policy

Answer 20

Laws that reduce unemployment and increase GDP, increases government spending, decreases taxes

Question 21

Stagflation

Answer 21

Stagnate economy + Inflation, effect of a left shift in sras, the idea that price level is up and output is down

Question 22

Why is AD downward sloping

Answer 22

The Weath Effect - Higher Prices people will buy less
Intrest Rate Effect - Price Level causes Interest Rates to go up, people will borrow less and spend less
Foreign Trade Effect - If Price Level goes up other people in other countries are gonna buy less in our country

Question 23

Equation for Closing the gap

Answer 23

Change in GDP = Multiplier x Initial change in spending

Question 24

Non-Discretionary Fiscal Policy (Automatic Stabliziers)

Answer 24

Laws that are already in the books

Question 25

Discretionary Fiscal Policy

Answer 25

Government gettin involved, new laws designed to speed up or slow down the economy

Question 26

Negative Output Gap

Answer 26

Likely in recession (point inside ppc, trough)

Question 27

Positive Output Gap

Answer 27

Unstastainable capacity, overworking (Point outside ppc, peak)

Question 28

Full Employment

Answer 28

Max sustainable capacity (on ppc, line)