Hubbard & O'Brien Chapter 27 Quiz
45 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What happens to real wages when the price level increases from 100 to 110 due to a shortage of supply?

  • They remain constant, affecting employment levels.
  • They increase, leading to higher employment.
  • They decrease, prompting suppliers to hire more workers. (correct)
  • They become unstable, causing uncertainty in the labor market.

    • What causes the shift of the LAS curve from LAS0 to LAS1?

  • Increase in human capital, physical capital or technology. (correct)
  • Increase in government regulations.
  • Decrease in consumer spending.
  • Decrease in human capital investment.

    • At long run equilibrium point A, what relationship is established between AD0, LAS1, and SAS1?

  • AD0 varies independently from LAS1 and SAS1.
  • AD0 equals LAS1 and SAS1. (correct)
  • AD0 is less than LAS1 and SAS1.
  • AD0 exceeds LAS1 and SAS1.

    • How does expansionary fiscal policy affect the AD curve following shifts in LAS and SAS?

    <p>AD might shift outward depending on government spending changes.</p> Signup and view all the answers

    What is the ultimate effect of the transition from point B to point C in terms of the supply curve?

    <p>It shows a movement along the AS curve due to sticky wages.</p> Signup and view all the answers

    Which factor does NOT impact long-run aggregate supply?

    <p>Short-run supply shocks</p> Signup and view all the answers

    What is a characteristic of interventionist supply-side policies?

    <p>Active government intervention</p> Signup and view all the answers

    Which of the following is an example of a fiscal supply-side policy?

    <p>Tax cuts</p> Signup and view all the answers

    How can technological advancements affect long-run aggregate supply?

    <p>By enhancing productivity</p> Signup and view all the answers

    Which of the following best describes free-market supply-side policies?

    <p>Minimal government interference</p> Signup and view all the answers

    What effect do supply-side policies generally aim to achieve?

    <p>Increase potential output</p> Signup and view all the answers

    Which of the following is a non-fiscal supply-side policy?

    <p>Labour market reforms</p> Signup and view all the answers

    How does an increase in capital, such as machinery, affect long-run aggregate supply?

    <p>It permanently increases productive capacity</p> Signup and view all the answers

    What characterizes discretionary fiscal policy?

    <p>It is initiated explicitly by the federal government.</p> Signup and view all the answers

    Which of the following is an example of a non-discretionary fiscal policy?

    <p>Transfer payments like unemployment benefits.</p> Signup and view all the answers

    How do automatic stabilizers function during a recession?

    <p>They provide transfer payments to boost consumption.</p> Signup and view all the answers

    What is the primary purpose of expansionary fiscal policy?

    <p>To stimulate aggregate demand during recessionary periods.</p> Signup and view all the answers

    What happens to aggregate demand during inflation when tax rates increase?

    <p>Aggregate demand decreases because disposable income falls.</p> Signup and view all the answers

    Which statement about supply-side fiscal policy is accurate?

    <p>It aims to improve aggregate supply through government measures.</p> Signup and view all the answers

    How does a wage subsidy function as a supply-side policy?

    <p>By decreasing overall labor costs for businesses.</p> Signup and view all the answers

    What distinguishes automatic (non-discretionary) fiscal policy from discretionary fiscal policy?

    <p>Discretionary fiscal policy requires specific legislative action.</p> Signup and view all the answers

    What does a recessionary gap indicate about the relationship between potential GDP and actual GDP?

    <p>Potential GDP is greater than actual GDP</p> Signup and view all the answers

    Which fiscal policy is recommended to correct a recessionary gap?

    <p>Expansionary fiscal policy</p> Signup and view all the answers

    What effect does a reduction in corporate taxes have on the short-run aggregate supply (SAS)?

    <p>It shifts the SAS curve outwards.</p> Signup and view all the answers

    What causes the price level to decrease from 100 to 90 during a shift of the SAS curve?

    <p>Excess supply in the economy</p> Signup and view all the answers

    According to sticky wage theory, what happens if the price level decreases?

    <p>Real wages increase, leading to less hiring</p> Signup and view all the answers

    What is the effect of an inflationary gap on potential GDP?

    <p>Potential GDP is less than actual GDP</p> Signup and view all the answers

    What effect does increasing corporate taxes have on the short-run aggregate supply (SAS)?

    <p>It shifts the SAS curve inwards.</p> Signup and view all the answers

    What occurs during a movement along the aggregate demand (AD) curve from point A to point C due to a change in price level?

    <p>Decrease in purchasing power</p> Signup and view all the answers

    What effect does an increase in minimum wage from RM 1500 to RM 1700 have on Aggregate Demand (AD)?

    <p>AD shifts right, but is countered by a decrease in short-run aggregate supply.</p> Signup and view all the answers

    How does the introduction of an additional tax on fee-based transactions affect Aggregate Demand (AD)?

    <p>AD shifts left due to higher transaction costs discouraging spending.</p> Signup and view all the answers

    What impact does a wage subsidy have on short-run aggregate supply (SRAS)?

    <p>SRAS shifts right as production costs decrease.</p> Signup and view all the answers

    What is one primary purpose of wage subsidies during a recession?

    <p>To prevent layoffs and encourage hiring.</p> Signup and view all the answers

    In the scenario where a wage subsidy is introduced, how does Aggregate Supply (AS) respond in the short run?

    <p>AS shifts right because production costs are reduced.</p> Signup and view all the answers

    What can happen if the marginal propensity to consume is lower in T15 households?

    <p>Aggregate Demand could shift left, reducing overall spending.</p> Signup and view all the answers

    Which factor does NOT influence the final impact on price from fiscal policy?

    <p>Changes in consumer sentiment.</p> Signup and view all the answers

    How does a higher minimum wage potentially affect short-run aggregate supply (SRAS)?

    <p>SRAS shifts left because of increased labor costs.</p> Signup and view all the answers

    What is the effect of expansionary fiscal policy during a recessionary gap?

    <p>Increase in government spending, decrease in taxes, increase in transfers</p> Signup and view all the answers

    How does an increase in personal income tax typically affect real GDP and employment?

    <p>Real GDP decreases and employment decreases</p> Signup and view all the answers

    What is the expected outcome when aggregate demand (AD) shifts less than the shift in short-run aggregate supply (SAS)?

    <p>Real GDP increases and price level decreases</p> Signup and view all the answers

    What may be a consequence of removing the RON 95 subsidy for high-income earners?

    <p>Increased production costs resulting in shifts in AS</p> Signup and view all the answers

    In the context of fiscal policies, what does contractionary fiscal policy aim to do during an inflationary gap?

    <p>Reduce aggregate demand by decreasing government spending</p> Signup and view all the answers

    Which scenario is likely to shift the short-run aggregate supply (SRAS) curve to the left?

    <p>Increase in corporate taxes</p> Signup and view all the answers

    What is the likely impact of a wage subsidy on real GDP and employment?

    <p>Real GDP increases, employment increases</p> Signup and view all the answers

    What does the term 'LAS = AD = AS' indicate in economic equilibrium?

    <p>Long-run equilibrium where real GDP is at its potential level</p> Signup and view all the answers

    Study Notes

    Lecture Information

    • Lecture 5 is on supply-side policies
    • References are from Hubbard and O'Brien Chapter 27

    Midterm Exam Format

    • The midterm exam covers lectures 1-4
    • Date and time: November 4th, 6:15 PM - 7:15 PM
    • Venue: The Grand Hall
    • Format: 8 questions
      • 4 short answer questions (no diagrams) - 12 marks
      • 2 long answer questions (with diagrams) - 10 marks
      • 2 numerical questions - 8 marks
    • Valid documentation required if the student misses the exam

    Learning Outcomes

    • Today's lecture covered supply-side fiscal policy, government expenditure
    • Examples of wage subsidy supply-side policies were discussed
    • The lecture contrasted discretionary and non-discretionary fiscal policies

    Fiscal Policy Summary

    • Fiscal policy affects aggregate demand
    • Expansionary fiscal policy is for recessionary periods
    • Contractionary fiscal policy is for inflationary periods
    • The lecture also discussed the impact of fiscal policy on aggregate supply

    Discretionary and Non-Discretionary Fiscal Policy

    • Fiscal policy can be discretionary or automatic (non-discretionary)
    • Discretionary fiscal policy involves explicit government intervention
    • Automatic fiscal policy uses existing strategies to address economic fluctuations without intervention

    Non-Discretionary Fiscal Policy

    • Automatic stabilizers are features of fiscal policy that automatically react to fluctuations in aggregate demand (AD)
    • Examples include existing tax systems and welfare benefits (e.g., transfer payments)

    Factors Affecting Long-Run Aggregate Supply (LRAS)

    •  Human capital (increasing skill base or increasing worker numbers)
    • Technological advancement
    • Changes in capital and institutional factors
    • Factors influencing input prices
    • Short-run supply shocks

    Supply-Side Policies

    • Supply-side policies involve fiscal and non-fiscal measures
    • Fiscal supply-side policies include tax cuts, targeted subsidies, infrastructure investment, and education
    • Non-fiscal policies include deregulation, labor market reforms, privatization, and trade liberalization

    Types of Supply-Side Policies

    • Interventionist policies directly influence and improve economic productivity & performance. These involve active government involvement
    • Free-market policies prioritize minimal government intervention, focusing on market forces to drive productivity & growth.

    Fiscal Policy - Expansionary Fiscal Policy

    • At point A, there is a recessionary gap (potential GDP > actual GDP)
    • Expansionary fiscal policy decreases corporate taxes, making production costs lower
    • This shift in aggregate supply (SAS) causes the economy to move from point A to B, adjusting to the new price level

    Fiscal Policy - Contractionary Fiscal Policy

    • At point A, there is an inflationary gap (potential GDP < actual GDP)
    • Contractionary fiscal policy increases corporate taxes, leading to an increase in production costs and a shift in the aggregate supply (SAS) curve.
    • This shift brings the economy to point C

    Fiscal Policy (Expansionary Fiscal Policy)

    • Depending on the policy, AD (Aggregate Demand) might shift out
    • The equilibrium real GDP will increase further due to the shift in SAS

    Next Week

    • There will be a guest lecture on inflation and unemployment

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Lecture 5: Supply Side Policies PDF

    Description

    This quiz focuses on supply-side policies as discussed in Hubbard and O'Brien Chapter 27. It covers topics including fiscal policy, government expenditure, and examples of wage subsidy policies. Test your understanding of the differences between discretionary and non-discretionary fiscal policies.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser