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

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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
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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...
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