Exam (elaborations) Essentials of Economics

Essentials of Economics

, Fiscal Policy - CORRECT ANSWERS-The use of government taxes and spending to
alter macroeconomic outcomes

Aggregate Demand - CORRECT ANSWERS-The total quantity of output demanded at
alternative price levels in a given time period, ceteris paribus

Consumption - CORRECT ANSWERS-Expenditure by consumers on final goods and
services

Investment - CORRECT ANSWERS-Expenditures on new plants and equipment in a
given time period, plus changes in business inventory

Government Spending - CORRECT ANSWERS-Income transfers by the government
are included in aggregate demand when the receiver uses the transfer to buy goods
and services

Net Exports - CORRECT ANSWERS-Exports - Imports

GDP Gap - CORRECT ANSWERS-The difference between full employment output and
the amount of output demanded at current price levels

Fiscal Stimulus - CORRECT ANSWERS-Tax cuts or spending hikes intended to
increase aggregate demand

Disposable Income - CORRECT ANSWERS-After-tax income of consumers

Multiplier - CORRECT ANSWERS-The multiple by which an initial change in aggregate
spending will alter total expenditure after an infinite number of spending cycles: 1/(1-
MPC)

Fiscal Restraint - CORRECT ANSWERS-Tax hikes or spending cuts intended to reduce
aggregate demand

Budget Deficit - CORRECT ANSWERS-The amount by which government expenditures
exceed government revenues in a given time period. Government Spending > Tax
Revenues

Budget Surplus - CORRECT ANSWERS-An excess of government revenues over
government expenditures in a given time period. Government Spending < Tax
Revenues

Barter - CORRECT ANSWERS-The direct exchange of one good for another, without
the use of money.

Money - CORRECT ANSWERS-Anything generally accepted as a medium of exchange