Flashcards on Aggregate Supply and Aggregate Demand, Fiscal and Monetary Policy
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What is Aggregate Demand?
Aggregate demand is the total demand of goods and services in an economy at a given price level in a given time period.
What is Aggregate Supply?
Aggregate supply is the total supply of goods and services in an economy at a given price level in a given time period.
What is Fiscal Policy?
Fiscal policy refers to the use of government spending, taxation and transfer payments to influence the economy.
What is Monetary Policy?
Monetary policy refers to the use of the central bank's tools to manage the money supply and interest rates to influence the economy.
What is the relationship between Aggregate Demand and Price Level?
The relationship between Aggregate Demand and Price Level is inverse: when the price level increases, the Aggregate Demand decreases, and when the price level decreases, the Aggregate Demand increases.
What is the relationship between Aggregate Supply and Price Level?
The relationship between Aggregate Supply and Price Level is positive: when the price level increases, the Aggregate Supply also increases.
What is Expansionary Fiscal Policy?
Expansionary Fiscal Policy is when the government increases its spending and/or lowers taxes to increase Aggregate Demand and stimulate economic growth.
What is Contractionary Fiscal Policy?
Contractionary Fiscal Policy is when the government decreases its spending and/or raises taxes to decrease Aggregate Demand and slow down inflation.
What is Expansionary Monetary Policy?
Expansionary Monetary Policy is when the central bank increases the money supply to lower interest rates and stimulate Aggregate Demand.
What is Contractionary Monetary Policy?
Contractionary Monetary Policy is when the central bank decreases the money supply to raise interest rates and slow down inflation.
What is the difference between Monetary Policy and Fiscal Policy?
Monetary Policy is controlled by the central bank and involves managing the money supply and interest rates, while Fiscal Policy is controlled by the government and involves managing spending, taxation, and transfer payments.
What is the difference between Expansionary and Contractionary Fiscal Policy?
Expansionary Fiscal Policy involves increasing spending and/or decreasing taxes to stimulate the economy, while Contractionary Fiscal Policy involves decreasing spending and/or increasing taxes to slow down inflation.
What is the difference between Expansionary and Contractionary Monetary Policy?
Expansionary Monetary Policy involves increasing the money supply to lower interest rates and stimulate the economy, while Contractionary Monetary Policy involves decreasing the money supply to raise interest rates and slow down inflation.
How does an increase in government spending affect Aggregate Demand?
An increase in government spending will increase Aggregate Demand by directly increasing demand for goods and services, as well as stimulating consumer and business confidence.
How does an increase in interest rates affect Aggregate Demand?
An increase in interest rates will decrease Aggregate Demand by decreasing investment and consumer spending.
How does a decrease in taxes affect Aggregate Demand?
A decrease in taxes will increase Aggregate Demand by leaving consumers with more disposable income to spend on goods and services.
What is Aggregate Demand?
Aggregate demand is the total demand of goods and services in an economy at a given price level in a given time period.
What is Aggregate Supply?
Aggregate supply is the total supply of goods and services in an economy at a given price level in a given time period.
What is Fiscal Policy?
Fiscal policy refers to the use of government spending, taxation and transfer payments to influence the economy.
What is Monetary Policy?
Monetary policy refers to the use of the central bank's tools to manage the money supply and interest rates to influence the economy.
What is the relationship between Aggregate Demand and Price Level?
The relationship between Aggregate Demand and Price Level is inverse: when the price level increases, the Aggregate Demand decreases, and when the price level decreases, the Aggregate Demand increases.
What is the relationship between Aggregate Supply and Price Level?
The relationship between Aggregate Supply and Price Level is positive: when the price level increases, the Aggregate Supply also increases.
What is Expansionary Fiscal Policy?
Expansionary Fiscal Policy is when the government increases its spending and/or lowers taxes to increase Aggregate Demand and stimulate economic growth.
What is Contractionary Fiscal Policy?
Contractionary Fiscal Policy is when the government decreases its spending and/or raises taxes to decrease Aggregate Demand and slow down inflation.
What is Expansionary Monetary Policy?
Expansionary Monetary Policy is when the central bank increases the money supply to lower interest rates and stimulate Aggregate Demand.
What is Contractionary Monetary Policy?
Contractionary Monetary Policy is when the central bank decreases the money supply to raise interest rates and slow down inflation.
What is the difference between Monetary Policy and Fiscal Policy?
Monetary Policy is controlled by the central bank and involves managing the money supply and interest rates, while Fiscal Policy is controlled by the government and involves managing spending, taxation, and transfer payments.
What is the difference between Expansionary and Contractionary Fiscal Policy?
Expansionary Fiscal Policy involves increasing spending and/or decreasing taxes to stimulate the economy, while Contractionary Fiscal Policy involves decreasing spending and/or increasing taxes to slow down inflation.
What is the difference between Expansionary and Contractionary Monetary Policy?
Expansionary Monetary Policy involves increasing the money supply to lower interest rates and stimulate the economy, while Contractionary Monetary Policy involves decreasing the money supply to raise interest rates and slow down inflation.
How does an increase in government spending affect Aggregate Demand?
An increase in government spending will increase Aggregate Demand by directly increasing demand for goods and services, as well as stimulating consumer and business confidence.
How does an increase in interest rates affect Aggregate Demand?
An increase in interest rates will decrease Aggregate Demand by decreasing investment and consumer spending.
How does a decrease in taxes affect Aggregate Demand?
A decrease in taxes will increase Aggregate Demand by leaving consumers with more disposable income to spend on goods and services.