When the economy is producing below ________ or potential output, the process works in reverse.
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business cycle
Political ________:** The effect on the economy of using monetary or fiscal policy to stimulate the economy before an election to improve reelection prospects.
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Keynes
________ argued that there could be situations in which total demand fell short of total production in the economy for extended periods of time.
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Liquidity trap
________:** A situation in which nominal interest rates are so low, they can no longer fall; also known as the zero lower bound.
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Tax cuts
________ initially will increase consumer spending and lead to a higher level of GDP.
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Lower interest rates
________ stimulate investment spending and push the economy back toward full employment.
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GDP
Wages and prices will all tend to increase together during booms when ________ exceeds its full- employment level or potential output.
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interest rate
The increase in government spending has no long- run effect on the level of output, only on the ________.
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neutrality of money
Long- run ________:** A change in the supply of money has no effect on real interest rates, investment, or output in the long run.
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GDP
Wages and prices will fall together during periods of recessions when ________ falls below full employment or potential output.
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full employment
Prices are lower and output returns to ________.
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full employment
If output exceeds ________, prices will rise and output will fall back to ________.
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Flashcard (94)