All Flashcards
Define Public Policy.
Government actions designed to influence the economy.
Define Economic Growth.
An increase in the amount of goods and services produced per head of the population over a period of time.
Define Real GDP per capita.
A measure of a country's economic output that accounts for the effects of inflation and the number of people in the country.
Define Human Capital.
The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.
Define Infrastructure.
The basic physical and organizational structures and facilities (e.g., buildings, roads, power supplies) needed for the operation of a society or enterprise.
Define Innovation.
The introduction of something new; a new idea, method, or device.
Define Supply-Side Economics.
An economic theory that advocates reducing taxes and deregulation to increase production and stimulate economic growth.
Define Short-Run Aggregate Supply (SRAS).
The total quantity of goods and services firms are willing and able to supply at different price levels in the short run.
Define Long-Run Aggregate Supply (LRAS).
The total quantity of goods and services firms are willing and able to supply at different price levels in the long run.
Define Demand-Side Policies.
Government policies that focus on shifting the Aggregate Demand (AD) curve to influence economic activity.
Define Aggregate Demand (AD).
The total demand for final goods and services in an economy at a given time.
Define Investment Tax Credit.
A tax incentive that allows businesses to deduct a percentage of the cost of new investments from their taxes.
Define Productivity.
The effectiveness of productive effort, especially in industry, as measured in terms of the rate of output per unit of input.
How does increased government spending on education affect long-run economic growth?
It improves the quality of labor, leading to higher productivity and increased output, shifting LRAS to the right.
How does government investment in infrastructure contribute to long-run real GDP growth?
It boosts overall spending, reduces transportation costs, and improves business efficiency, leading to increased productivity and output.
How do patents promote innovation and long-run economic growth?
Patents protect intellectual property, giving companies more incentive to innovate and create, thus increasing real GDP in the long run.
How does increasing employment lead to higher productivity and economic growth?
More workers contribute to increased output, leading to higher overall production and economic growth.
How do lower taxes for businesses affect the supply of loanable funds?
Lower taxes mean businesses have more money to invest, increasing the supply of loanable funds.
How do lower interest rates impact investment?
Lower interest rates make borrowing cheaper, leading to more investment by businesses and individuals.
How does an investment tax credit encourage economic growth?
It reduces a firm's taxes if it invests, encouraging more investment and growth.
How do lower taxes affect household spending and firm profits?
Lower taxes mean more income for households, leading to more spending and increased profits for firms.
How do productivity incentives boost demand?
Lower taxes incentivize people to work harder, leading to increased employment and less government dependence.
How does lower taxes affect risk-taking and investment?
With lower taxes, the expected income from investing increases, encouraging more risk-taking and investment.
Explain how improvements to roads and bridges can increase economic growth.
Better infrastructure reduces transportation costs for businesses, increases efficiency, and facilitates trade, leading to higher productivity and economic growth.
Explain how government funding for research and development (R&D) can lead to economic growth.
Government funding for R&D encourages innovation and technological advancements, leading to new products, processes, and industries, which boost productivity and economic growth.
Analyze a graph showing a rightward shift of the SRAS curve.
A rightward shift indicates an increase in aggregate supply, potentially due to lower production costs or improved technology, leading to lower price levels and higher output.
Analyze a graph showing a rightward shift of the LRAS curve.
A rightward shift indicates an increase in the economy's potential output, potentially due to increased resources, improved technology, or increased human capital, leading to long-term economic growth.
Analyze a graph showing a rightward shift of the AD curve.
A rightward shift indicates an increase in aggregate demand, potentially due to increased government spending or consumer confidence, leading to higher price levels and higher output.
Explain how a simultaneous rightward shift of both AD and AS curves affects the equilibrium price level and output.
Output will increase. The effect on the price level is indeterminate without knowing the relative magnitudes of the shifts.
Explain how a rightward shift of the AS curve can lead to a decrease in the price level and an increase in real GDP.
An increase in aggregate supply puts downward pressure on prices as firms are able to produce more goods and services at lower costs, leading to higher output and lower inflation.
Explain how an increase in government spending on infrastructure can lead to a rightward shift of the AD curve.
Increased government spending injects more money into the economy, boosting demand for goods and services and shifting the AD curve to the right.
Analyze how a decrease in business taxes can shift the SRAS curve.
A decrease in business taxes reduces production costs, leading to an increase in aggregate supply and a rightward shift of the SRAS curve.
Analyze how an investment tax credit can shift the AS curve.
An investment tax credit encourages businesses to invest more, leading to increased productivity and a rightward shift of the AS curve.
Analyze how an increase in government spending on education can shift the LRAS curve.
Increased investment in education improves the quality of the labor force, leading to higher productivity and a rightward shift of the LRAS curve.
Analyze how a decrease in regulations can shift the AS curve.
A decrease in regulations reduces the costs of doing business, leading to an increase in aggregate supply and a rightward shift of the AS curve.