econ 202 test #2

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econ 202 test #2
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2013-08-29 19:15:09
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  1. Economic growth
    Increasesin per capita real GDP measured by its rate of change per year
  2. Patent
    A government protection that gives an inventor the exclusive right to make, use, or sell and invention for a limited period of time (currently 20 years)
  3. Innovation
    Transforming an invention into something that is useful to humans
  4. Fiscal policy
    • The discretionary changing of government expenditures or taxes to achieve national economic goals, such as:
    • -high employment (low unemployment)
    • -price stability
    • -economic growth
  5. Crowding-out effect
    The tendency of expansionary fiscal policy to cause a decrease in planned investment or planned consumption in the private sector.  This decrease normally results from the rise in interest rates
  6. Supply-side economics
    The suggestion that creating incentives for individuals and firms to increase productivity will cause the aggregation supply curve to shift outward              

    • The supply-side effects of changes in taxes              
    • -expansionary fiscal policy could involve reducing marginal tax rates
    • ·        Advocates argue this increases productivity since individuals will work harder and longer, save more, and invest more
    • ·        The increased productivity will lead to more economic growth
  7. Discretionary Fiscal Policy
    • -an increase in government spending that will stimulate economic activity
    • -changes in government spending:
    • *military spending
    • *education spending
    • *budgets for government agencies
  8. Change in taxes
    – a rise in taxes causes a reduction in aggregate demand because it can reduce consumption spending, investment expenditures, and net exports
  9. Recognition time lag
    The time required to gather information about the current state of the economy
  10. Action time lag
    The time between recognizing an economic problem and implementing (putting) policy to solve it.  The action time lag is quite long for fiscal policy, which requires congressional approval
  11. Effect time lag
    • -The time that elapses between the implementation of a policy and the results of that policy
    • ·        The time it takes for a fiscal policy to affect the economy
  12. Automatic, or built-in, stabilizers
    • Special provisions of certain federal programs that cause changes in desired aggregate expenditures without the action of congress and the president.  Examples are the federal progressive tax system and unemployment compensation
    • -        Changes in government spending and taxation that occur automatically without deliberate        action of congress
    • ·        The tax system – incomes and profits fall when business activity slows down, and the government’s tax revenues drop as well.  Some economists considers this an automatic tax cut which, therefore stimulates aggregate demand
    • ·        Unemployment compensation (& income transfer payments) – unemployment compensation reduces changes in people’s disposable income.  Their disposable income remains positive, although at a lower level.  In
    • a recession, more people are eligible for income transfer payments and do not experience
    • as dramatic a drop in disposable income
    • ·        Welfare spending
  13. Government budget deficit
    An excess of government spending over government revenues during a given period of time
  14. Balanced budget
    A situation in which the government’s spending is exactly equal to the total taxes and other revenues it collects during a given period of time
  15. Government budget surplus
    An excess of government revenues over government spending during a period of time
  16. Public debt
    The total value of all outstanding federal government securities
  17. Entitlements
    Guaranteed benefits under a government program such as Social Security, Medicare or Medicaid
  18. Non-controllable expenditures
    Government spending that changes automatically without action by congress

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