Economics Study Guide

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Quiz #4 Study Guide

Chapter 16
What are the 3 views of the supply curve (describe & illustrate) Keynesian view: AD is horizontal, a shift to the right in recession increases Q but not P. inflation becomes problem only after AD shifts past Q*, the production capacity MONETARIST VIEW: changes in money supply affect prices, not output, AD shift to right increases inflation, AS is a long-run concept and is vertical CONSENSUS VIEW: economists see an AS curve with an upward slope that increases near full employment. Inflation accelerates in that region of the curve as AD shifts right. What is the Phillips curve

Increase in aggregate demand cause a trade-off between unemployment and inflation. As economy moves from point a to b to c, the inflation unemployment trade off shifts from point a to b to c What is the inflationary flashpoint

-the output at which inflationary pressure intensify; the point on the AS curve where slope increases sharply. Illustrate the goal of supply-side policy
What does a leftward shift of the AS curve do to the economy -unemployment and inflation increase, output decreases
-tax increases, deteriorating human capital investment, costly regulation, trade restrictions What are the 5 supply-side policy tools and specific strategies for implementation -higher marginal tax rates for individuals and businesses

-increased taxes on saving and investment
-letting infrastructure deteriorate
-increased gov’t regulation
-increased trade barriers
How are the supply-side policy tools used differently than fiscal policy or monetary policy tools

Chapter 17
Describe & illustrate the difference between short-term and long-term growth

Increases in output result from increased use of existing capacity or from increases in that capacity itself. In part a the mix of output at point A doesn't make full use of production possibilities. We can get additional output by employing more of our available resources or using them more efficiently. This is...
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