Econ - I Gov stabilizes economy with fiscal and monetary...

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I. Gov stabilizes economy with fiscal and monetary policy A. B. Automatic Stabilizers: policies set in place already to reduce fluctuations in business cycle 1. Unemployment benefits, marginal tax brackets, welfare and transfer programs, not Social Security C. Discretionary stabilizer (fiscal policy): gov makes changes spending and/or taxes 1. Expansionary fiscal policy - stimulate growth by increasing consumer and business spending and employment a) To increase AD gov: (1) Increase gov purchases, cut tax, increase gov transfer programs 2. Contractionary fiscal policy - slow economic growth to fight inflation a) To decrease AD gov: (1) Reduce gov purchase, increase tax, reduce gov transfer payment D. Stagflation: policy that shifts AD helps one problem but worsens other 1. Solution is to move SRAS back to right (by making resources more available or tech advance) II. A. Barter - system of exchange; 4 inefficiency for bartering 1. Both need to want it a) Time searching for trading partners increases transactions costs 2. Each good has many prices 3. Lack of standardization 4. Difficult to accumulate wealth B. Money needs to have these qualities: 1. Medium of exchange: used to intermediate exchange of goods & services 2. Unit of account: divisible and uniform (only useful unit of account if price no change quickly 3. Store of Value a) Durable
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C. D. Measuring money supply-different degrees of liquidity/spending (ease that asset can be accessed and converted to cash) 1.
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