AP Econ Unit 3 Quest

What are the four determinants of the AD curve

consumption, investment, government spending, and net exports (CIGX)

Why is the AD curve a downward sloping curve

Increase in price level creates a lower quantity of goods supplied

What are the four determinants of the SRAS curve

cost of inputs, government policies, expectations, productivity

Why is the SRAS curve an upward sloping curve

sticky wages, higher price level means more profit and a higher quantity of goods supplied

Sticky wages

wages are only negotiated periodically, they do not increase as quickly as prices

What are the determinants of the LRAS curve

changes in amount of resources, labor population, capital, and technology

What level of unemployment is marked by being on the LRAS curve

natural rate of unemployment (full employment)

What is the gap called when SRAS equilibrium is to the left of the LRAS

recessionary gap

What happens to wages in a recessionary gap

wages usually fall leading to increase in SRAS

What is the gap called when SRAS equilibrium is to the right of LRAS

inflationary gap

What happens to wages during an inflationary gap

wages usually rise, decreasing SRAS

What happens to output, price level, and employment when AD increases

output increases, price level increases, and employment increases

What happens to output, price level, and employment when AD decreases

output decreases, price level decreases, and employment decreases

What happens to output, price level, and employment when SRAS increases

output increases, price level decreases, and employment increases

What happens to output, price level, and employment when SRAS decreases

output decreases, price level increases, and employment decreases

Who is in charge of fiscal policy in the United States

the government (president and congress)

What are the tools of fiscal policy

government spending and taxation

What does contractionary fiscal policy look like

legislation intended to slow down short run economic growth (AD shifts left, decrease government spending & increase taxes)

What does expansionary fiscal policy look like

legislation intended to encourage short run economic growth (AD shifts left, increase in government spending & decrease in taxes)

What are automatic stabilizers

some government programs will automatically apply fiscal policy

What is an example of an automatic stabilizer during a recession

unemployment benefits such as food stamps & progressive income taxes collect less in taxes

What is deficit spending

when the government plans to spend more money than they take in (taxes < spending)

What form does the national debt look like to those who hold it

people buying bonds (loans that represent debt that must be repaid to the holder of the bond)

What is the formula for MPC

1 - MPS

What is the formula for MPS

1 - MPC

What is the formula for the spending multiplier

1/MPS

What is the formula for tax multiplier

-MPC/MPS