Unit 5: Long-Run Consequences of Stabilization Policies

Phillips

________ curve- A graphical device that shows the relationship between inflation and the unemployment rate.

Surplus

________ happens when the difference between tax revenues and government spending is positive.

Stagflation

________ (Cost- push inflation)- A situation in the macroeconomy when inflation and the unemployment rate are both increasing.

Supply side boom

________- When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls.

Technology

________- A nations knowledge of how to produce goods in the best possible way.

money supply

A change in the ________ does not affect the economy.

labor force

If the ________ of a country produces more output per worker from one year to the next, productivity has increased and the PCC shifted outwards.

Productivity

________ incentives- Lower taxes mean workers take more of their pay home, which might prompt wage earners to work harder, take less time off, and be more productive.

central bank

The ________ develops monetary policy and is independent of Congress and the president.

Growth

________ is measured through real GDP per capita.

Firms

________ invest in physical capital and individuals invest in human capital.

AD curve

When the ________ increases, an inflationary gap happens to cause an increase in real GDP to GDPi (lower unemployment rate) and an increase in the aggregate price level to PL2.

human capital

Improving ________ increases the quality of labor available, which causes an increase in economic growth.

real GDP

A decrease creates inflation, lowers ________, and increases the unemployment rate.

Deficit

________ happens when the government spends more than its received revenue.

Federal Government

________ is the largest demander for loanable funds.

Inflation

________ can happen due to changes in monetary supply.

SRAS

An increase in ________ is the best possible macroeconomic situation.

Renewable resources

________- Natural resources that can replenish themselves if they are not overharvested.

Deflation

________- A sustained falling price level, usually due to severely weakened aggregate demand and a constant SRAS.

Low investments

________ leads to a decrease in inefficiency in building things.

velocity of money

The ________- The average number of times that a dollar is spent in a year.

public sector

Crowding out effect- It is the economic theory that ________ spending can lessen or eliminate private sector spending.

contractionary monetary policy

In an inflationary gap, ________ could be used to assist contractionary fiscal policy to put downward pressure on the price level.

Demand pull

________ and Cost- push are working together, which is the worst case with inflation.

Phillips curve

A graphical device that shows the relationship between inflation and the unemployment rate

Demand-pull inflation

This inflation is the result of stronger consumption from all sectors of AD as it continues to increase in the upward-sloping range of SRAS

Recession

In the AD and AS models, a recession is typically described as falling AD with a constant SRAS curve

Deflation

A sustained falling price level, usually due to severely weakened aggregate demand and a constant SRAS

Supply-side boom

When the SRAS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls

Stagflation (Cost-push inflation)

A situation in the macroeconomy when inflation and the unemployment rate are both increasing

The quantity theory of money

A theory that asserts that the quantity of money determines the price level and that the growth rate of money determines the rate of inflation

Equation of exchange

A way to view the quantity theory of money

The velocity of money

The average number of times that a dollar is spent in a year

Crowding out effect

It is the economic theory that public sector spending can lessen or eliminate private sector spending

Productivity

The quantity of output that can be produced per worker in a given amount of time

Stock of physical capital

When the quantity of physical capital in an economy is increased, in many cases, the capital helps increase the quantity of more capital

Human capital

The amount of knowledge and skills that labor can apply to the work that they do and the general level of health that the labor force enjoys

Natural resources

Productive resources provided by nature

Nonrenewable resources

Natural resources that cannot replenish themselves

Renewable resources

Natural resources that can replenish themselves if they are not overharvested

Technology

A nations knowledge of how to produce goods in the best possible way

Supply-side fiscal policy

Fiscal policy centered on tax reductions targeted to AS so that real GDP increases with very little inflation

Investment tax credit

A reduction in taxes for firms that invest in new capital like a factory or piece of equipment

Productivity incentives

Lower taxes mean workers take more of their pay home, which might prompt wage earners to work harder, take less time off, and be more productive

Risk-taking

Lowering the tax rate on profits increases the expected rate of return and encourages more investment