question

Gives us insight on our economy

answer

The Business Cycle

question

5% or greater increase

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Economic Boom

question

When the economy shrinks by 5%

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Economic Bust

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Quantity of a good demanded at a given time period increases as its price fall

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Law of demand

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Adam Smith- "Wealth of Nations" --economy affects life

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Classical economic school of thought

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1. Flexible Prices- should be able to charge whatever you want 2. Flexible Wages- pay people whatever you want 3. Says Law- Supply creates demand 4. Popular Economic school of thought- prior to the 1930's 5. Naturally Unstable- The economy is naturally unstable

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Classical Economic School of Thought

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John Maynard Keynes 1. The economy is constantly in motion 2. The government intervention was good

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Keynesian Economic School of Thought

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1. Steady decline in output 2. Real GDP- 30% decrease in 1929-1933 3. 1934- some economic growth 4. 1936-37- got worse 5. 1939- had the same real GDP as it did in 1929 6. Per capita was less in 1929

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The Great Depression- October 25, 1929

question

1. Increase in market demand 2. Marketed the end of the depression 3. 19% incredible in the GDP by 1942 4. Full employment

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World War 2- December 7, 1994

question

When the economy slows down for two or more consecutive quarters--results in unemployment

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Recession

question

Designed to help people who fought in the war to go on and get a college education

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G.I. Bill

question

1. Post WW2 Recession- lasted 8 months long 4.3% 2. Lasted 16 months 12.3% unemployment rate

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Recessions

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1. Internal Marker Forces- businesses within our economy 2. External Shocks- when something on the outside of our economy shakes up or disrupts the economy (not all shocks are good or bad)

answer

Macroeconomic Determinants

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Taxes, government spending

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Policy Levers

question

1. Output- should produce from year to year 2. Jobs- should be able to get a job 3. Prices- should be able to purchase goods and services at affordable prices 4. Growth- diversification/ want to have a variety for the consumer 5. International balances we want to be able to trade with other countries and we want want them to be able to trade with us

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Macroeconomy Outcomes

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When something from within our economy shakes things up

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Internal shocks

question

When something happens on the outside of our economy

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External shocks

question

The total quantity of output that's demanded at different prices and different times

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Aggregate Demand

question

The some total of output that producers are willing and able to supply at different places and at different times

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Aggregate Supply

question

1. Undesirability- When the equilibrium price or output level may not satisfy our economic goals 2. Instability- Even if the equilibrium is what you want, it may not last long

answer

Potential Problems with Macro equilibrium

question

Quick fix

answer

Short Run

question

More permanent fix

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Long Run

question

When the government spends money in the economy

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Fiscal Policy

question

using money and credit controls to ultra the economy

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Monetary Policy

question

the use of tax insentives and other mechanisms to increase the ability and willingness to increase goods and services

answer

Supply Side Economic Policy

question

1. Consumption- Expentagers on final good and services by consumers 2. Investment- Upgrading existing equipment or buying new equipment 3. Government Spending- Anytime the government spends money in the economy 4. Net Exports- Exports-Imports

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Components of Aggregate Demand

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The money that we have left over after we pay our taxes

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Disposable Income

question

The portion of our disposable income that is not spent

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Savings

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The portion of total disposable income that is spent on consumer goods and services

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Average Propensity to Consume

question

Total Consumption/Total Disposable Income

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Formula for Average Propensity to Consume

question

The fraction of each additional dollar of disposable income that is spent on consumption

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Marginal Propensity to Consume

question

Change in Consumption/Change in Disposable Income

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Formula for Marginal Propensity to Consume

question

The fraction of each additional dollar of disposable income that is not spent on consumption

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Marginal Propensity to Save

question

1-M.P.S.

answer

Formula for Marginal Propensity to Save

question

change in consumer spending that is caused by a change in the own value of owned assets

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Wealth Effects

question

things that affect what we consume and how

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Non-Income Terminates of Consumption

question

1. Expectations- if we think some is going to do something special we may buy something for them as well 2. Wealth Effects- If you have more money, the less careful you are going to be with it or how you spend 3. Credit- How carried away you will get with spending 4. Taxes- What we owe the government

answer

Non-Income Terminates of Consumption

question

Autonomous Consumption + Income - Dependent Consumption

answer

Total Consumption=

question

The mathematical relationship that indicates the rate of desired consumer spending at various income levels

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Consumption Function

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Consumption expentagers in excess of disposable income

answer

Dissavings

question

1. Demand Poll Inflation- When the cost of goods or services go up because people are in demand of them. 2. Cost Push Inflation- When the costs go of factors of production goes up so do the prices

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Types of Inflation

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Where finished good are bought

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Product Market

question

Where we get our factors of production

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Factor Market

question

Income that is not spent directly on domestic output but instead diverted from circular flow

answer

Leakages

question

1. Savings- if you choose to save some of your money 2. Imports- If you are buying something from another country it takes away from our country 3. Household Taxes- When you have to give money to the government you're not spending it 4. Business Taxes- If businesses are paying taxes they are not spending money in the economy 5. Business Savings- If a business decides not to spend money but sets it aside

answer

Types of Leakages

question

when there is addition of money to the circular flow

answer

Injection

question

1. Undesired Inventory- Merchandise that you have in stock that people no longer want anymore 2. Falling Output Prices- Pay top dollar for something and the price goes down, bought it when it was expensive, but now it is cheap.

answer

Declines of Income

question

The fraction of each additional dollar of disposable income spent on consumption

answer

Marginal Propensity to Consume

question

Change in total consumption/change in disposable income

answer

Formula for Marginal Propensity to Consume

question

The multiple by which an initial change in spending will alter total expentager after an infinite number of spending cyclicles

answer

Multiplier

question

1/1- M.P.C.

answer

Multiplier=

question

Multiplier X Initial Change in Aggregate Spending

answer

Total change in spending=

question

1. Produce cut output when output exceeds demand- if people aren't demanding something don't produce it 2. Resulting Loss of Income- causes a decline in consumer demand- the less income people make the less people will demand 3. Declines in Consumer- spending will lead to further cut backs of production and more lost income

answer

Macro equilibrium According to Keynes

question

When there is an increase in the average prices we pay for

answer

Inflation

question

A brief period of inflation

answer

Short Run Inflation

question

Long period of inflation

answer

Long Run Inflation

question

When the government spends or doesn't spend money in the economy to alter the economy (uses its own personal spending to affect the economy. If the government wants to speed up or slow down the economy)

answer

Fiscal Policy

question

1. Purchase more is less goods- people are more likely to spend money in the economy 2. Raises or Lowers Taxes- If the government increases taxes you will have less disposable income, less demand slows down the economy 3. Change The Level of Income Transfers- Social security or welfare benefits increase people will still be spending more money

answer

Fiscal Policy/ Ways the Government can Alter the Economy

question

1. Internal Market Forces- What is happening within out economy 2. External Shocks- When something on the outside of our economy shakes things up 3. Policy Tools

answer

Determinants of Fiscal Policy

question

1. Increase in Output 2. Jobs- People should be able to find work 3. Prices- Should be able to buy goods and services 4. Growth- More diverse/ more variety 5. International Balances- Want things to go well with our trade partner

answer

Outcomes of Fiscal Policy

question

Tax cuts or government spending increases

answer

Fiscal Stimulus

question

How much do we want to speed the government up?

answer

Desired Fiscal Stimulus

question

Amount of additional aggregate demand you will need to achieve full employment

answer

Short Fall

question

Aggregate Demand and Short Fall/ Multiplier

answer

Desired Fiscal Stimulus=

question

1. More Consumption- can spend more on goods and services 2. More Income 3. More Savings- may have extra money you can put away

answer

Effects of Tax Cuts

question

Desired Fiscal Stimulus/ M.P.C.

answer

Desired Tax Cuts=

question

Take the form of tax increases or spending cuts

answer

Fiscal Restraints

question

Excess Aggregate Demand / Multiplier

answer

Desired Fiscal Restraints=

question

Desired Fiscal Restraint / Marginal Propensity to Consume

answer

Desired Increase in Taxes=

question

A reduction in private sector borrowing as a result of increases in government borrowing

answer

Crowding Out

question

the use of borrowed money to finance government expentagers that exceed tax revenue.

answer

Deficit Spending

question

Yes

answer

Is it okay to operate a Deficit?

question

The amount by which the government exceeds its tax revenue

answer

Budget Deficit

question

When your revenue is greater than your expentagers

answer

Budget Surplus

question

A 12 month period that we use for accounting purposes

answer

Fiscal Year (F.Y.)

question

The elements of the federal budget that are not determined by legislative or executive decisions

answer

Discretionary Fiscal Spending-

question

Accounts for about 20% each yr. -80% determined by things years ago from our government

answer

Discretionary Funding

question

Something like a tax increase or spending cut, used by the government if the government wants to slow down the economy

answer

Fiscal Restraints

question

A tax cut or spending increase - if we want to speed the economy up

answer

Fiscal Stimulus

question

Federal expentagers that automatically respond to counter cyclical changes in national income Example: Unemployment Compensation

answer

Automatic Stabilizer

question

1. Government Spending Increases- increases through unemployment compensation, welfare, social security-- costs about $2 Billion for the government. 2. Government Tax Revenue Declines- about $38 Billion in decreases 2. Deficit Increases- by $15 Billion-- shrinks because there is not enough spending occurring

answer

When The GDP Decreases by 1%

question

The portion of the budget balance that is attributed to short run changes in the economy

answer

Cyclical Deficit

question

Cyclical Balance + Structural Balance

answer

Total Budget Balance=

question

Federal Revenue At Full - Expentagers at full employment under fiscal or budgetary conditions

answer

Structural Deficit=

question

Reduction in private sector borrowing caused by an increase in government borrowing

answer

Crowding Out

question

An increase in private sector borrowing cause by decreases in government borrowing

answer

Crowding In

question

1. Spending it on goods and services- government can buy more stuff 2. Cut Taxes- Reduce taxes people are being charged for 3. Increases- Income transfers 4. Can be used to pay of old debt

answer

Uses for Budget Surplus

question

The accumulation of debt by the national government

answer

National Debt

question

An obligation to make future payment of debt

answer

Liability

question

Anything having exchange value in the market place or wealth

answer

Assets

question

1. Internal Debt- The U.S. gov. debt that is help by U.S. households and institutions 2. External Debt- The U.S. gov. debt that is held by foreign households and institutions

answer

Name The Two Kinds of Debt

question

The issuance of new debt in payment or previous debt

answer

Refinance

question

The interest that is required to be paid each year on outstanding debt debt- charged 6% on loan, what you have to pay each year

answer

Debt Service

question

An explicit legislated limit on the size of the budget deficit-- when the legislature tells the president that he cannot spend this amount

answer

Deficit Ceiling

question

An explicit legislative limit on the amount of outstanding national debt

answer

Debt Ceiling

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