Levels labor sector highlights the rates of pay also

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levels Labor Sector – highlights the rates of pay Also concerned with the rate of employment and unemployment Macroeconomics is most concerned Monetary Sector – focuses on the interest rates Also highlights the economy’s money supply Respond quickly to shocks, because thousands are waiting to make money based on pricing changes Assumed that these sectors can quickly equilibrialize Activity in this sector affects the goods and services sector by affecting wage levels and price levels International Sector – emphasized the exchange rate Also focuses on the balance of payments Respond quickly to shocks, because thousands are waiting to make money based on pricing changes Assumed that these sectors can quickly equilibrialize Activity in this sector affects the goods and services sector by affecting wage levels and price levels Laffer Curve – represents the governmental tax rate that will best maximize tax revenues. Arthur Laffer, economist who believed in trickle-down economics
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o Used this curve to illustrate the increasing taxes would not always increase revenues Basic idea is that neither a % or 100% tax rate will result in any tax revenue Lorenz Curve – used to demonstrate shifts in income distribution among a population over time Can be used to show income inequalities Positive Analysis of Macroeconomic Policy – stating that a tax increase will likely lead to lower interest rates Only concerned with the economic consequences of a particular action Not the feelings or values associated with the action Normative Analysis – statement that congress should increase taxes to reduce interest rates Generally concerned with whether or not a policy change should be made Typically come with the bias of the person doing the analysis Congressional Budget Office (CBO) – government office responsible for projecting federal surpluses and deficits Non partisan group responsible for providing congress with the facts and statistics on the federal budget Fractional Reserves Banking Systems – most free-market banking systems Banks keep fraction of the deposits they receive in reserve (liquid) and lend out the remainder They have an obligation to redeem all deposits upon demand 100% Reserve Banking Systems - requires banks to keep all deposits on hand and ready for withdrawal An increase in government spending will lead to an increase in aggregate demand Government spending is one of 4 components of aggregate demand Demand-Side Fiscal Policy – these policies cut taxes on the middle and lower class in order to stimulate spending in the economy, increase job creation, and decrease inflation Used following the Great Depression Theory behind demand-side economics is that working class people often spend all of their income, so by lowering taxes on the lower and middle classes, workers will have more money left in their pockets to spend in the economy Worked to expand and grow the U.S. in the mid and late 1990s
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