Long Run Consequences of Stabilization Policies

What are expansionary fiscal policy

1. Increased government spending

2. Decrease in government taxes

What are contractionary fiscal policy

1. Decrease government spending

2. Increased government taxes

What is expansionary monetary policy in a limited reserve market

1. Increased government purchasing of government bonds

2. Decrease in the discount rate - interest rate from borrowing from the central bank

3. Decrease in the reserve requirment

What is contractionary monetary policy in a limited reserve market

1. The government selling of government bonds

2. Increase in the discount rate

3. Increase in the reserve requirment

What does an increase in the money supply lead to

It leads to a lower nominal interest rate, which leads to increased investment or investment-sensitive consumption spending, which leads to an increase in the aggregate demand curve

What does a decrease in the money supply lead to

It leads to a higher nominal interest rate, which leads to decreased investment or investment sensitive consumption spending, which leads to a decrease in the aggreagate demand curve

What does the money market look like (draw it)

What is expansionary monetary policy in a ample reserve framework

1. Decrease in the policy rate - interest rate from borrowing from bank to bank

2. Decrease in reserve requirements.

What is contractionary monetary policy in a ample reserve frame work

1. Increase in the policy rate

2. Increase in reserve requirment

What does a ample reserve market look like

What is the phillips curve

It represents the trade-off between inflation and unemployment

What does a phillips curve look like (draw it)

What happens to the Short run phillips curve when AD shifts left

There is a rightward shift along the curve which leads to lower inflation and higher unemployment.

What happens to the short run phillips curve when AD shifts right

There is a leftward shift along the curve which leads to higher inflation and lower unemployment

What happens to the long run phillips curve when the SRAS shifts left

There is a rightward shift from the LRAPC

What happens to the long run phillips curve when the SRAS shifts right

There is a leftward shift

What is the LRPC eqaul to

The natural reate of unemployment

When there is a increase in the natural rate of unemployment what happens to the LRPC

It shifts to the right

When there is a decrease in the natural rate of unemployment what happens to the LRPC

It shifts to the left

What is the monetary equation of exchange

MV=PY

M= Money supply

V= Velocity of money

P= Price level

Y= Output

p x y= NOMINAL GDP

What does it mean when a government has a deficit

When its expenditures are greater than its income

What does it mean when a government has a surplus

Their income is greater than their expenditures

What is a national debt

The sum of all past budget deficits

What is crowding out

A increase in government spending, financed by increased loans, results in driving down the private sectors investment

When their is increased loans due to fiscal policy, what happens to the supply of loanable funds

It decreases

What are the consequences of crowding out

Expansionary fiscal policy could be less