Macroeconomies Unit 3

*Cries*

Below Full Employment

Below Full Employment

Full Employment (Equilibrium)

Above Full Employment

Shifters of AD

Increase: Consumption ⬆️ Investment ⬆️ Gov’t Spending ⬆️ Exports ⬆️

VICE VERSA

Shifters of SRAS

Increase: ' Wages ⬆️ Biz taxes decrease⬆️ Favorable Subsidies/Regulations⬆️ Resource Price drops⬆️

VICE VERSA

Fiscal Policy

When government spends money and taxes to influence the economy

GDP change with MPS/MPC

($ amount of spend) x (the multipliers)

Spending Multiplier Formula

1/MPS

Taxes Multiplier Formula

MPC/MPS

GDP Gap Formula

($GDP Gap)/(tax or spending multiplier)

Gap from POTENTIAL GDP to ACTUAL GDP

Potential GDP - Actual GDP

Automatic Stabilizers

Tempers the economy without direct intervention by policymakers

Classical Economic Thinking

NOT wanting government to intervene to fix market

Keynesian Economic Thinking

Wanting government to intervene to fix market

Demand Pull

Driven by consumer demand

Cost Push

Driven by supply cost

Loanable Funds Market Graph

Crowding Out

Increase in government spending leads the economy to spend as well

Deficit Debt

Amount of money government borrows in a SINGLE YEAR

National Debt

TOTAL amount of money government borrows