Transcript Achieving Economic Stability

Achieving Economic
Stability
Chapter 16 section 1
1.
Which is an example of the uncertainty caused by economic instability?
A.
B.
C.
D.
2.
The social cost of economic instability include all of the following except::
A.
B.
C.
D.
3.
A healthy economy helps the country deal with its social problems
Economic Instability is at the root of all social problems
Economic instability can lead to reduced spending on social programs
A healthy economy helps people feel more certain about the future
Economists measure the cost of economic instability with
A.
B.
C.
D.
5.
Stagflation
Wasted resources
Political instability
Crime and damage to family values
Which of the following statements is FALSE?
A.
B.
C.
D.
4.
A politician is reelected
A consumer delays a purchase
A manufacturer increases output
An economist measures the GDP gap
The misery index
The GDP gap
Constant GDP
Both a and b
Economic instability wastes all of the following except:
A.
B.
C.
D.
Human resources
Natural resources
Tax revenues
Capital resources
The Cost of Economic Instability
• Forms of Economic instability
– recession
– High unemployment
– Inflation
• Stagflation: a period of stagnant growth
combined with inflation
– Experienced in 1970’s
The Cost of Economic Instability
• Economics Cost
– GDP gap: measures
the differences
between the actual
GDP and the GDP that
could have been
achieved had all the
resources been fully
employed
The Cost of Economic Instability
• The misery index: the sum of monthly inflation
and unemployment rates
• Uncertainty increases when GDP decreases
Social Cost
• Economic Instability
– Results in wasted labor, capital, and natural
resources
– Can lead to political instability
– Associated with:
• Increased crime
• Lower levels of police protection
• Less willingness by companies to hire
disadvantaged people
Chapter 16 section 1
1.
Which is an example of the uncertainty caused by economic instability?
A.
B.
C.
D.
2.
The social cost of economic instability include all of the following except::
A.
B.
C.
D.
3.
A healthy economy helps the country deal with its social problems
Economic Instability is at the root of all social problems
Economic instability can lead to reduced spending on social programs
A healthy economy helps people feel more certain about the future
Economists measure the cost of economic instability with
A.
B.
C.
D.
5.
Stagflation
Wasted resources
Political instability
Crime and damage to family values
Which of the following statements is FALSE?
A.
B.
C.
D.
4.
A politician is reelected
A consumer delays a purchase
A manufacturer increases output
An economist measures the GDP gap
The misery index
The GDP gap
Constant GDP
Both a and b
Economic instability wastes all of the following except:
A.
B.
C.
D.
Human resources
Natural resources
Tax revenues
Capital resources
Macroeconomic Equilibrium
Chapter 16 section 2
1.
Macroeconomic equilibrium is determined by the
A.
B.
C.
D.
2.
What effect would a decrease in production cost for all firms have on the aggregate
supply curve? The Curve would
A.
B.
C.
D.
3.
Level off
Shift to the right
Shift to the left
Not change
The aggregate demand curve has the slope it does because
A.
B.
C.
D.
5.
Level off
Shift to the right
Shift to the left
Not change
What effect would a decrease in consumer savings have on the aggregate demand
curve? The curve would
A.
B.
C.
D.
4.
Intersection of the supply curve and the demand curve
Aggregate supply curve
Intersection of the aggregate supply curve and the aggregate demand curve
The aggregate demand curve
It must intersect the aggregate supply curve
People willing to purchase less at higher prices
There is a single money supply of a fixed size in the economy at any one time
The market tends toward equilibrium
All of the following would cause aggregate supply to increase EXCEPT
A.
B.
C.
D.
An increase in labor productivity
An increase in interest rates
The development of new technologies
A decrease in government regulations
Aggregate Supply
Total value of goods and services that
all firms would produce in a specific
period of time at various price level
Aggregate Supply Curve
• Shows the amount of
real GDP that could
be produced at
various price levels
Aggregate Supply Curve
• Cost fall = ASC shifts
to the right
• Cost Rise = ASC
shifts to the left
Aggregate Demand
Total quantity of goods and
services demanded at different
price levels
Aggregate Demand Curve
• Quantity of real GDP
that would be
purchased at various
price levels
Figure 16.4a
Aggregate Demand Curve
• shifts curve to the
right
– Decrease in savings,
– expectations of strong
economy,
– increase in transfer
payments financed
through deficit
spending,
– reduction in taxes
shifts curve to the right
Figure 16.4b
Aggregate Demand Curve
• Shifts curve to the left
– Increase in savings
– Expectations of a
weak economy
– A decrease in transfer
payments through
deficit spending
– An increase in taxes
Figure 16.4b
Macroeconomic Equilibrium
Level of real GDP consistent with a
given price level, as determined by the
intersection of the aggregate supply
and aggregate demand curves
Macroeconomic Equilibrium
• Achieved when
aggregate supply
equals aggregate
demand
• Does not provide
exact predictions
about the economy
• Useful for analyzing
macroeconomic
trends
Chapter 16 section 2
1.
Macroeconomic equilibrium is determined by the
A.
B.
C.
D.
2.
What effect would a decrease in production cost for all firms have on the aggregate
supply curve? The Curve would
A.
B.
C.
D.
3.
Level off
Shift to the right
Shift to the left
Not change
The aggregate demand curve has the slope it does because
A.
B.
C.
D.
5.
Level off
Shift to the right
Shift to the left
Not change
What effect would a decrease in consumer savings have on the aggregate demand
curve? The curve would
A.
B.
C.
D.
4.
Intersection of the supply curve and the demand curve
Aggregate supply curve
Intersection of the aggregate supply curve and the aggregate demand curve
The aggregate demand curve
It must intersect the aggregate supply curve
People willing to purchase less at higher prices
There is a single money supply of a fixed size in the economy at any one time
The market tends toward equilibrium
All of the following would cause aggregate supply to increase EXCEPT
A.
B.
C.
D.
An increase in labor productivity
An increase in interest rates
The development of new technologies
A decrease in government regulations
Stabilization Policies
Chapter 16 section 3
1.
All of the following are elements of Keynesian economic framework EXCEPT
A.
B.
C.
D.
2.
All of the following are related to demand-side policies EXCEPT
A.
B.
C.
D.
3.
An expanded role in the economy
A reduced role in the economy
No role in the economy
A role in monetary policies only
Unemployment insurance and federal entitlement programs are two examples of
A.
B.
C.
D.
5.
Fiscal policy
Monetarism
Keynesian economics
The output-expenditure model
Those who favor supply-side polices would tend to support the government playing
A.
B.
C.
D.
4.
The consumption function
The multiplier
The Laffer curve
The accelerator
Supply side policy
Monetarism
Wage price controls
Automatic stabilizers
Which of the following policies would likely be favored by a monetarist?
A.
B.
C.
D.
Increasing the money supply at a steady rate determined by growth in real GDP
Increasing government spending to offset a reduction in spending in the investment sector
Lowering business tax rates to provide an incentive for businesses to produce more
Deregulating industries to minimize the government’s role in the economy
Demand-Side Policies
• Federal Policies designed to increase or
decrease total demand in the economy by
shifting the aggregate demand curve to
the right or left
• Fiscal Policy: the federal governments
attempt to stabilize the economy through
taxing and government spending
Demand-Side Policies
• John Maynard Keynes (1883-1946) was one of
the most influential economists of the twentieth
century. In addition to revolutionizing economic
thinking about fiscal policy, he played a central
role in the Bretton Woods Conference of 1944,
which created the International Monetary Fund
and the World Bank.
• Keynesian Economics: a set of actions designed
to lower unemployment by stimulating aggregate
demand
•
Demand-Side Policies
• Multiplier Effect: a change in investment
spending will have a magnified effect on
total spending
• Accelerator effect: change in investment
is caused by a change in overall spending,
a downward economic spiral
• According to Keynes: only the
government is large enough to offset
changes in investment spending
Demand-Side Policies
• Automatic stabilizers = unemployment
insurance and federal
– Increase government spending whenever
changes in the economy threaten people’s
income
• Long Run:
– All attempts by gov’t to increase aggregate
demand merely increase the price level
without increasing GDP
Supply Side Policies
• Reducing Taxes = increase in tax
collections failed to materialize in
the1980’s
• Successful policies can shift aggregate
supply
– Moving economy into equilibrium
• Seek to promote economic growth rather
than economic stability
Laffer curve
Monetary Policies
• Believe the money supply should be
allowed to grow
– Slow and steady
– Trying to control inflation
– Permit economic growth
• Expanding the money supply cannot
permanently affect rate of employment
Chapter 16 section 3
1.
All of the following are elements of Keynesian economic framework EXCEPT
A.
B.
C.
D.
2.
All of the following are related to demand-side policies EXCEPT
A.
B.
C.
D.
3.
An expanded role in the economy
A reduced role in the economy
No role in the economy
A role in monetary policies only
Unemployment insurance and federal entitlement programs are two examples of
A.
B.
C.
D.
5.
Fiscal policy
Monetarism
Keynesian economics
The output-expenditure model
Those who favor supply-side polices would tend to support the government playing
A.
B.
C.
D.
4.
The consumption function
The multiplier
The Laffer curve
The accelerator
Supply side policy
Monetarism
Wage price controls
Automatic stabilizers
Which of the following policies would likely be favored by a monetarist?
A.
B.
C.
D.
Increasing the money supply at a steady rate determined by growth in real GDP
Increasing government spending to offset a reduction in spending in the investment sector
Lowering business tax rates to provide an incentive for businesses to produce more
Deregulating industries to minimize the government’s role in the economy
Economics and Politics
Chapter 16 section 4
1.
The use of discretionary fiscal policy has declined for all of the following reasons
EXCEPT
A.
B.
C.
D.
2.
The United States relies most on which of the following policies
A.
B.
C.
D.
3.
C.
D.
Economists have different backgrounds
Economists are sharply divided into competing schools of thought with little overlap of ideas
and beliefs
Economists sometime seem to offer conflicting advice
Economists are continually seeking new answers to new problems
Which is the best description of the role of the Council of Economic Advisors?
A.
B.
C.
D.
5.
Passive fiscal policies
Structural fiscal policies
Discretionary fiscal policies
Monetary policy
All of the following describes economist EXCEPT
A.
B.
4.
the relatively short duration of recessions
government gridlock
Congressional budget caps have limited federal spending
The government usually knows of upcoming recessions far in advance
Report economic developments and propose strategies
Carry out monetary policy
Implement presidential economic policies
Keep the public informed about economic issues
A president might ignore the recommendations of professional economic advisors in
order to
A.
B.
C.
D.
Avoid an unpopular decision
Adhere to the principles of political economics
Avoid participating in economic politics
Maintain presidential monetary authority
Changing Nature of Economic
Policy
• Discretionary fiscal policy
– Used less today
– Has increased the use of monetary policy
• Passive Fiscal Policy
– Contribute to stability of the American Economy
• Structural Fiscal Policy
– Designed to strengthen the economy in the long run
– Does not deal with unemployment or inflation
Why Economist Differ
• Choose polices that reflect their sense of
which economic problems are most critical
• Affected by the economic conditions
prevailing in their lifetimes
Economic Politics
• The Council for Economic Advisors
– Advises the president of the United States on
economic policy
• Contribute to the understanding of economic
activity
• Help policy makers prevent another Great
Depression, stimulate growth, help
disadvantaged groups
• Cannot help a country AVOID minor recessions
Chapter 16 section 4
1.
The use of discretionary fiscal policy has declined for all of the following reasons
EXCEPT
A.
B.
C.
D.
2.
The United States relies most on which of the following policies
A.
B.
C.
D.
3.
C.
D.
Economists have different backgrounds
Economists are sharply divided into competing schools of thought with little overlap of ideas
and beliefs
Economists sometime seem to offer conflicting advice
Economists are continually seeking new answers to new problems
Which is the best description of the role of the Council of Economic Advisors?
A.
B.
C.
D.
5.
Passive fiscal policies
Structural fiscal policies
Discretionary fiscal policies
Monetary policy
All of the following describes economist EXCEPT
A.
B.
4.
the relatively short duration of recessions
government gridlock
Congressional budget caps have limited federal spending
The government usually knows of upcoming recessions far in advance
Report economic developments and propose strategies
Carry out monetary policy
Implement presidential economic policies
Keep the public informed about economic issues
A president might ignore the recommendations of professional economic advisors in
order to
A.
B.
C.
D.
Avoid an unpopular decision
Adhere to the principles of political economics
Avoid participating in economic politics
Maintain presidential monetary authority