Economics chapter 15 section 2
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Transcript of Economics chapter 15 section 2
WARM-UPFirst, explain the difference between the supply curve
and the aggregate supply curve. Second, draw and label an aggregate supply curve.
Stabilization PoliciesChapter 15 Section 2
MedicareFederal health care program for senior citizens, regardless of
incomeFiscal Policy
Use of Government spending and revenue collection measures to influence the economy
Derived from Keynesian EconomicsGovernment spending and taxation policies
suggested by John Maynard Keynes to stimulate the economy
Demand-Side Policies
Keynesian EconomicsOutput-Expenditure Model:
GDP=C+I+G+FF= Foreign SectorG= Government SectorC= Consumer SectorI= Investment (Business) Sector
MultiplierMagnified change in overall
spending caused by a change in investment spending
AcceleratorChange in investment spending
caused by a change in overall spending
Role of GovernmentIndirect role by lowering taxesBig enough to offset changes in investment-sector
spending
Automatic StabilizersAutomatic Stabilizers
Program that automatically provides benefits to offset a change in people’s incomes
EntitlementsBroad social program that uses established
eligibility requirements to provide health, nutritional, or income supplements to individuals
Unemployment InsuranceGovernment program providing payments to
unemployed workers
Supply-Side PoliciesEconomic Policies designed to
stimulate the economy by increasing productionSame goal as demand side policies
Smaller Role for GovernmentReduces the role of the government 3 ways
DeregulationRelaxation or removal of
government regulations on business activitiesLower Federal Taxes
Laffer CurveHypothetical relationship between
federal income tax rates and tax revenuesLimitations of Supply-Side Policies
Difficult to predict
Supply-Side Policies
Monetary PoliciesMonetarism
School of thought stressing the importance of stable monetary growth to control inflation and stimulate long-term economic growthShort Run Impacts
Contractionary Monetary PolicyExpansionary Policy
Long Run ImpactsFuture InflationWage-Price Controls
Policies and regulations making it illegal for firms to give raises or raise prices without government permissionUse of Monetary Policy
Gradual