others Flashcards
Expansionary Fiscal Policy does what?
- increase gov spending, Interest rates, output
- decrease taxes
Fiscal Policy
Expansionary*
(recession)
INCREASE in gov spending, aggregate demand, price level, and RGDP
DECREASE unemployment
Decrease in taxes
INCREASE in consumption, Aggregate demand, price level, and RGDP.
DECREASE in unemployment
Contractionary Fiscal Policy (inflation)
DECREASE in gov spending, decrease in aggregate demand, price level.
INCREASE unemployment
Increase in taxes
DECREASE consumption, aggregate demand, price level, RGDP.
INCREASES unemployment
Contractionary Fiscal policy does what?
- Decrease in gov spending
- Increase in taxes
Crowding Out Effect
*Expansionary Fiscal policy
- Increase in deficit spending, demand for loanable funds,and real interest rate.
- Reduces private sector spending
Crowding out effect on private
Increase in gov spending, decreases private supply of loanable funds, increases real interest rate
Interest rate is low
:)
- More gross investment
- Captial stock grows
- LRAS shifts right
- PPC shifts outward
Interest Rate is high
:(
- Gross investment falls
- Capital stock falls
- LRAS shifts left
- PPC shifts inward
Monetary Policy
EASY
(recession)
Fed buys bonds (thru open market), money supply increases, nominal interest rate decreases, investment spending increase,AD,PL,GDP
and unemployment decreases.
Monetary Policy
TIGHT
inflation
Fed sells bond, money supply decreases,nominal interest rate increases, investment spending,AD,PL, RGDP decrease. Unemployemnt increases
Interest rate and bond prices relationship between MS, IR, bond prices
Inverse relationship
Easy monetary policy; interest rates and bond prices?
MS and bond prices increase
IR decrease
Tight monetary policy
Interest rate and bond prices?
MS, bond prices decrease
IR increase
