WARM-UP First, explain the difference between the supply curveand the aggregate supply curve. Second, draw and label anaggregate supply curve.
Chapter 15 Section 2
Demand-Side PoliciesMedicare Federal health care program for senior citizens, regardless ofincome Fiscal Policy Use of Government spending and revenue collectionmeasures to influence the economy Derived from Keynesian Economics Government spending and taxation policiessuggested by John Maynard Keynes to stimulate the economy
Keynesian Economics Output-Expenditure Model: GDP=C+I+G+F F= Foreign Sector G= Government Sector C= Consumer Sector I= Investment (Business) Sector Multiplier Magnified change in overallspending caused by a change in investmentspending Accelerator Change in investment spendingcaused by a change in overall spending
Role of Government Indirect role by lowering taxes Big enough to offset changes in investment-sectorspendingAutomatic Stabilizers Automatic Stabilizers Program that automatically provides benefitsto offset a change in people’s incomes Entitlements Broad social program that uses establishedeligibility requirements to provide health, nutritional, orincome supplements to individuals Unemployment Insurance Government program providing payments tounemployed workers
Supply-Side Policies Supply-Side Policies Economic Policies designed tostimulate the economy by increasing production Same goal as demand side policiesSmaller Role for Government Reduces the role of the government 3 ways Deregulation Relaxation or removal ofgovernment regulations on business activitiesLower Federal Taxes Laffer Curve Hypothetical relationship betweenfederal income tax rates and tax revenuesLimitations of Supply-Side Policies Difficult to predict
Monetary PoliciesMonetarism School of thought stressing the importanceof stable monetary growth to control inflation andstimulate long-term economic growthShort Run Impacts Contractionary Monetary Policy Expansionary PolicyLong Run Impacts Future Inflation Wage-Price Controls Policies and regulations making itillegal for firms to give raises or raise priceswithout government permissionUse of Monetary Policy Gradual