unemployment and fiscal policy

Question 1

multiplier d

Answer 1

total change in output caused by an initial change in government spending

Question 2

consumption function (aggregate)

Answer 2

equation that shows how consumption spending in the economy as a whole depends on the other variables (ex multiplier)

Question 3

investment d

Answer 3

expenditure on newly produced capital goods and buildings, including new housing

Question 4

consumption d

Answer 4

expenditure on consumer goods including both short-lived goods and services and long-lived goods

Question 5

marginal propensity to consume d

Answer 5

change in consumption when disposable income changes by one unit

Question 6

which curve is the marginal propensity to consume the gradient of

Answer 6

the consumption line,
x=current income,
y=aggregate consumption spending

Question 7

autonomous consumption d

Answer 7

consumption that is independent of income

Question 8

consumer durables d (long lived goods)

Answer 8

consumer goods with a life expectancy of more than three years such as home furniture, cars, fridges

Question 9

goods market equilibrium d

Answer 9

point at which output equals the aggregate demand for goods produced in the home economy

Question 10

talk about the goods market equilibrium diagram

Answer 10

x=output
y=aggregate demand
aggregate demand is upward sloping straight line,
goods market equilibrium is where ad line meets 45 degree line

Question 11

aggregate demand equation for graph with output=x and ad=y

Answer 11

ad = C0 + C1Y +I,
(C0 is autonomous consumption)
(c0 + I is autonomous demand)

Question 12

what happens when there is a fall in investment for the output=x ad=y diagram

Answer 12

decrease in investment shifts curve downward,
equilibrium point shifts down to new line and then across to 45 degree line then down again and repeats until at new equilibrium

Question 13

how do you see the multiplier on the output=x ad=y diagram when there is a fall in investment

Answer 13

see how much output has fallen on the x compared to the initial fall in investment on the y axis

Question 14

what is the equation for the multiplier

Answer 14

1 / (1-C1),
from aY= C0 + C1Y +I
y=1/(1-C1) * (C0 + I)

Question 15

autonomous demand d

Answer 15

components of ad that are independent of current income

Question 16

equation for disposable income

Answer 16

((1-t)Y)

Question 17

consumption equation

Answer 17

C=c0 + c1(1-t)Y

Question 18

automatic stabilisers d

Answer 18

characteristics of the tax and transfer system in an economy that have the effect of offsetting an expansion or contraction of the economy

Question 19

positive and negative feedback d

Answer 19

positive=some initial change sets in motion process that magnifies initial change,
negative=initial change ‘’ ‘’ that dampens the initial change

Question 20

monetary policy d

Answer 20

central bank actions aimed at influencing economic activity through changing interest rates or the price of financial assets

Question 21

crowd out d

Answer 21

when economy near full capacity an increase in government spending reduces private sector spending

Question 22

primary budget deficit d

Answer 22

government deficit excluding interest payments on its debt

Question 23

how does the government borrow money

Answer 23

by selling bonds to firms and households

Question 24

what does the sale of government bonds do to the government debt

Answer 24

increases it

Question 25

inflation _____ the governments debt ratio (debt as a percentage of gdp)

Answer 25

reduces

Question 26

supply side d

Answer 26

how labour and capital are used to produce goods and services