Michael Reber - taxation that reduce fluctuations in DI and...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Michael Reber Econ 102 Test 3 Chapter 11 LRAS curve : depends on the supply of resources, level of technology, and the production incentives by the formal and informal institutions of the economy Natural rate of unemployment: rate of unemployment in which the economy returns to usually between 4 and 6% Economy’s potential output is based on the o willingness and ability to supply resources to firms, o level of technology o the institutional underpinnings of the economy’s potential output (clearer patent laws or copyright laws) Supply shocks o Beneficial: increases aggregate supply such as abundant harvests, discovery of natural resources, or technological breakthroughs o Adverse: reduction of aggregate supply such as drought, or terrorist attack Chapter 12 Fiscal policy o Automatic Stabilizers: structural features of government spending and
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: taxation that reduce fluctuations in DI and thus consumption, over the business cycle Requires no congressional action to operate year after year (automatic) Reduces the drop in DI during a recession and reduces the jump of DI during expansions so it’s a stabilizer o Discretionary fiscal policy: requires deliberate manipulation of government purchases, transfer payments, and taxes to promote economic goals like full employment price stability o Expansionary fiscal policy: an increase of government purchases or a decrease in next taxes to increase aggregate demand enough to reduce unemployment and return the economy to its potential output o Contractionary fiscal policy: a decrease of government purchases or an increase in next taxes to decrease aggregate demand enough to return the economy to its potential output o...
View Full Document

This note was uploaded on 01/30/2012 for the course ECONS 102 taught by Professor Kuzyk during the Spring '08 term at Washington State University .

Ask a homework question - tutors are online