Economics Chapter 16: Achieving Economic Stability – Flashcards
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Economic instability
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High unemployment, recession, an inflation
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Stagflation
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Stagnant growth combined with inflation
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GDP gap
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Actual GDP minus potential GDP if all resources were fully employed.
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Misery index or discomfort index
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The sum of monthly inflation and unemployment rates
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Wasted resources
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People want to work but there are no jobs available
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Political instability
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Bad times equals angry voters
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Aggregate supply
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Total value of goods and services that all firms would produce in a specific amount of time at various price levels
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Aggregate supply curve
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Slopes up to the right and can shift
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Aggregate demand
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Total quantity of goods and services demanded at different price levels.
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Aggregate demand curve
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Slopes down and the the right. It can shift.
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Macroeconomic equilibrium
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Intersection of aggregate supply and demand curves
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Demand side polices
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Increase or decrease total demand by shifting the aggregate demand curve.
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Keynesian economics
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Actions designed to decrease unemployment by increasing aggregate demand
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Multiplier
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Change in investment spending will have a magnified effect on total spending
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Automatic stabilizers
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Programs that kick in automatically when changes in the economy threaten income
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Unemployment insurance
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Laid off due to the economy, not for misconduct
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Federal entitlements
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Welfare, Medicare, social securities
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Progressive income tax
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Work less hours make less money and fall into a lower tax bracket.
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Supply side polices
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Stimulate output and lower unemployment by increasing production rather than demand (Reagan)
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Deregulation
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Removing regulations with which industries must comply
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Monetarism
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Places the importance on the role of money and it's growth. Favor slow,long yet monetary growth in order to control inflation
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Wage price controls
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(Nixon) made it illegal for businesses to give workers a raise or to raise prices without permission from the government
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Fiscal policy
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Government tries to stabilize the economy by taxing and spending
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Discretionary fiscal policy
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Someone must choose to implement
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Passive fiscal policy
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Reacts automatically when the economy changes
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Structural fiscal policy
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Plans and programs for the long run.
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Recognition lag
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Are we in a recession?
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Implementation lag
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Let's do something about it (too late)
