The laffer curve illustrates relationship between quizlet

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When a tax is levied on buyers, the demand curve shifts _____ by the size of . EXPLANATION: The Laffer curve shows the relationship between the tax on a. A ______ drives a wedge between the price buyers pay and the price sellers receive. . The Laffer curve shows the relationship between the _____ and _____. Chapter 4. Learn vocabulary, terms, and more with flashcards, games, and other study tools. the laffer curve illustrates the relationship between. tax rates.

Comparative Advantage The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers. Absolute Advantage The ability to produce a good using fewer inputs than another producer Competitive Market A market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold. Supply Curve A curve that shows the relationship between the price of a product and the quantity of the product supplied.

Quantity Demanded The amount of a good or service that a consumer is willing and able to purchase at a given price.

Law of Demand Holding all else equal, when the price of a good rises, consumers decrease their quantity demanded for that good Demand Curve A graph of the relationship between the price of a good and the quantity demanded https: Compliments Two goods for which a decrease in the price of one good increases the demand for the other good Normal Good A good for which, other things equal, an increase in income leads to an increase in demand Inferior Good A good for which, other things equal, an increase in income leads to a decrease in demand.

Equilibrium A situation in which the market price has reached the level at which quantity supplied equals quantity demanded https: Price Ceiling A maximum price that can be legally charged for a good or service https: Factor Market A market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

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Stocks shares of ownership in a company Bonds A certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate.

Frictional Unemployment A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs. It is the unemployment rate that occurs when the economy is operating at a sustainable rate of output. Consumption Function The relationship between consumption spending and disposable income Investment Spending spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories Planned Investment Spending the investment spending that businesses intend to undertake during a given period Unplanned Inventory Investment occurs when actual sales are more or less than businesses expected, leading to unplanned changes in inventories Aggregate Demand Curve A curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government.

Wealth Effect When price levels increase, the market value of certain financial assets decreases fixed rate bonds causing individuals to have less wealt Interest Rate Effect If the average price level rises, consumers and firms might need to borrow more money for spending and capital investment, which increases the interest rate and delays current consumption.

This postponement reduces current consumption of domestic production as the price level rises.

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Fiscal Policy The federal government efforts to keep the economy stable by increasing or decreasing taxes or government spending Monetary Policy Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

Inflationary Gap The amount by which aggregate spending at full employment exceeds full-employment output. Output Gap The gap between real GDP and potential GDP Expansionary Fiscal Policy An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output Contractionary Fiscal Policy A decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two, for the purpose of decreasing aggregate demand and thus controlling inflation.

Savings-Investment Spending Identity an accounting fact that states that savings and investment spending are always equal for the economy as a whole. Interest Rate Cost of borrowing money, expressed as a percentage of the amount borrowed per year.

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Stagflation recession combined with inflation A change in the amount of capital in the economy will lead to a change in the SRAS curve, assuming workers' inflation expectations are unchanged.

Assuming no change in the money wage rate, an increase in the price level will cause the quantity of real GDP that is supplied to increase, resulting in a movement along the same SRAS. Also, increase in Demand will result in a greater quantity supplied hence movement along the same SAS.

Follow steady and predictable monetary policy steady growth of money supply and taxes should be kept low Economy is self-regulating CFA Level 1 - Economics flashcards Quizlet http: Fed notes, coins, and banks' reserves deposits at the Fed.

Size of monetary base restricts the total amount of money that can be created. Change in Money Supply - change in monetary base x money multiplier The lower the desired reserve ratio and the lower the currency drain results in greater money multiplier 1 Discount rate; 2 Reserve requirements least used ; 3 Open market operations most used Federal Reserve Policy Tools - Discount rate Rate at which banks can borrow reserves from the Fed.

Fed purchases increases cash for lending, decreases interest rates.

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Fed sales remove cash, increasing interest rates Fed's Balance Sheet - Assets Primarily Treasury securities, gold, deposits with other central banks, IMF special drawing rights, loans to banks at the discount rate Fed's Balance Sheet - Liabilities US currency in circulation; bank reserve deposits Determinants of Money Demand 1 Interest rates most critical ; 2 Inflation increases demand for nominal money ; 3 Real GDP growth increases the demand for nominal and real money.

Supply of Money Determined by the central bank independent of interest rates. Unemployment below natural rate, lead to increase in real wages. Demand-pull inflation will cont. Sustained cost-push inflation happends when input costs cont. Phillips Curve - change in expected inflation will shift short-run phillips curve but NOT the long-run phillips curve.

Real Business Cycle Theory Think: Crowding out effect When gov't borrows to finance the federal budget deficit, tendency for businesses to reduce investment. In other words, increased deficits raise interest rates and reduce private investments.

Therefore balanced budget multiplier is positive Fiscal Policy Limitation 1 Recognition delay recognizing bubbles ; 2 Administrative delay passing laws ; 3 Impact delay too late Discretionary fiscal policy multiplier effect 1 Gov't purchase multiplier: Automatic stabilizers counter cyclical 1 Induced taxes: Sets FFR based on current economic state.