Hubbard & O'Brien Chapter 27 Quiz

Factors that impact production costs and expectations in the short term, influencing the amount of goods and services businesses are willing to supply at different price levels.

Factors that affect an economy's long-term productive capacity, including technological progress, labor force growth, and institutional frameworks.

Policies that aim to increase potential output and long-run aggregate supply for long-term economic growth. They can be fiscal or non-fiscal.

Supply-side policies that involve direct government intervention to improve markets and industries. Examples include regulations, subsidies, and infrastructure investments.

Supply-side policies that prioritize minimal government intervention and rely on market forces to drive productivity and growth. Examples include deregulation, labor market reforms, and trade liberalization.

Fiscal policy aimed at increasing government spending or reducing taxes to stimulate economic activity during a recession.

The relationship between the overall price level in an economy and the quantity of output supplied by businesses.

The impact of changes in price levels on short-run production decisions.

A shift in the long-run aggregate supply (LAS) curve, showing an expansion in the economy's potential output. This is caused by factors like increased human capital, physical capital, or technological advancements. For example, investing in skill development or promoting advancements in AI.

When wages are slow to adjust to changes in the price level, leading to a movement along the short-run aggregate supply (SAS) curve. This happens because even though prices are changing, wages remain 'sticky' for a while, influencing real wages and suppliers' hiring decisions.

A government policy aimed at stimulating the economy by influencing aggregate demand (AD). These measures can include increasing government spending, reducing taxes, or providing subsidies. This is intended to increase overall spending and boost economic activity.

A policy by the government to reduce economic activity, usually done by reducing government spending, raising taxes, or increasing interest rates. These policies can help control inflation or reduce budget deficits.

The short-run aggregate supply (SAS) curve moves outward when there's an expansion in the long-run aggregate supply (LAS). This occurs because increased potential output (LAS shift) leads to increased production capacity in the short run as well.

A situation where the economy is producing below its potential output, leading to unemployment and unused resources.

A situation where the economy is producing above its potential output, leading to inflation and resource scarcity.

A government policy that aims to slow down the economy by decreasing government spending, increasing taxes, or decreasing transfer payments.

A policy focusing on influencing the supply side of the economy, aiming to increase productivity and efficiency by implementing measures such as wage subsidies or tax breaks for businesses.

A policy focusing on influencing the demand side of the economy, aiming to stimulate spending and economic activity by implementing measures such as government spending or tax cuts.

The removal of a government subsidy on fuel for higher-income earners, leading to increased fuel prices for this group.

The introduction of a new tax on transactions related to fees, impacting various sectors and potentially hindering economic activity.

A tax levied on transactions involving fees, such as banking or online services. It increases the cost of these services, reducing consumer and business spending, leading to a leftward shift in aggregate demand (AD).

A government policy that provides financial assistance to employers to cover a portion of their wage costs. It aims to encourage hiring, prevent layoffs and sustain consumer spending during economic downturns.

An increase in the minimum wage can lead to higher worker income, boosting consumption and shifting aggregate demand (AD) to the right. However, higher labor costs can also reduce profits and short-run aggregate supply (SRAS), shifting it to the left.

An economic policy that affects both aggregate demand (AD) and aggregate supply (SRAS). Fiscal policies, like taxes and government spending, can influence the overall level of economic activity.

This effect explains the increase in spending due to a rise in wealth. Individuals tend to spend more when they feel wealthier.

This effect explains the shift in consumption patterns when the relative price of goods changes. If one good becomes cheaper, people will tend to buy more of it, and less of the relatively more expensive goods.

The short-run aggregate supply curve which shows the relationship between the price level and the quantity of output supplied, assuming fixed input prices.

The long-run aggregate supply curve which shows the relationship between the price level and the quantity of output supplied, assuming all input prices are flexible and at equilibrium.

The phenomenon where wages and prices adjust slowly to changes in the economy, leading to a delay in the restoration of equilibrium.

The impact of changes in real income and the relative prices of goods on consumer spending.

Discretionary fiscal policy involves deliberate government intervention to adjust tax rates or government spending. It's a conscious effort to influence the economy, especially during economic fluctuations.

Non-discretionary fiscal policy refers to automatic adjustments in government spending and tax revenues that occur without any deliberate government action. These are built-in mechanisms that react to changes in the economy's performance.

Automatic stabilizers are built-in mechanisms in the economy that work automatically to moderate fluctuations in aggregate demand. These stabilizers include features like the tax system and transfer payments (like unemployment benefits) that automatically adjust based on economic conditions.

During a recession, transfer payments, such as unemployment benefits, automatically increase, boosting aggregate demand as recipients spend more. Conversely, during inflation, higher incomes lead to increased tax revenue, reducing disposable income and moderating demand, thus acting as a stabilizing force.