The Influence of Monetary and Fiscal Policy on Aggregate Demand

A set of flashcards covering key terms and concepts related to monetary and fiscal policy's influence on aggregate demand.

Aggregate Demand (AD)

The total demand for all goods and services in an economy at a given price level.

Expansionary Fiscal Policy

Government policy that increases spending and decreases taxes to stimulate economic growth.

Recessionary Gap

A period when the economy is operating below its potential output, leading to higher unemployment.

Money Supply (MS)

The total amount of money available in an economy at a specific time.

Interest Rate

The cost of borrowing money, usually expressed as a percentage.

Liquidity Preference Theory

The theory that explains how interest rates are determined by the supply and demand for money.

Crowding Out

A situation where increased government spending leads to a reduction in private sector spending.

Automatic Stabilizers

Economic policies and programs that automatically help stabilize an economy without direct intervention from policymakers.

Spending Multiplier

The ratio of change in national income to the change in government spending that causes it.

Contractionary Monetary Policy

Policy to decrease the money supply and increase interest rates to reduce inflation.

Natural Rate of Unemployment

The long-term rate of unemployment determined by structural and frictional factors in the labor market.