ECON 1015 Exam 3 Questions and Answers Latest Update

ECON 1015 Exam 3 Questions and Answers Latest Update What causes recessions? - Answers Shift declines in aggregate demand/aggregate supply When aggregate demand shifts left... - Answers the unemployment rate goes up, output goes down, and price level declines declines in aggregate supply... - Answers Caused by shifts in both long-run and short-run AS Curves the great recession - Answers an institutional breakdown in the loanable funds market, real estate values fell Securitization - Answers the process of transforming loans or other financial assets into securities Dodd-Frank Act - Answers legislation passed in 2010 aimed at reforming the banking industry and offering consumers greater protection Great recession - decrease in wealth - Answers -Real estate is often the single largest portion of wealth -Stocks lost ⅓ of their value in 2008 Great Recession - decrease in expected income - Answers -People realized the economy was faltering -Consumer spending decreases during times of uncertainty Classical economists - Answers long run, prices are flexible, savings are crucial to growth, focus on supply, market is stable and full employment, government intervention is not necessary Keynesian economists - Answers short run, prices are sticky, savings are a drain on demand, focus on demand, the market is unstable and cyclical unemployment, government intervention is crucial Sources of funds - Answers income or revenue Uses of funds - Answers spending or outlays Transfer payments are - Answers Payments made to individuals when no good or service is received in return (social security, income assistance) Government outlays = - Answers Government spending on goods & services + transfer payments Mandatory spending - Answers Required govt spending by permanent laws (social security, medicare) Discretionary spending - Answers Can be altered when the annual budget is set (bridges, roads, defense spending) Social Security - Answers Guarantees that American workers retire with at least some retirement income Medicare - Answers Federal program that funds health care for retirees (65 and older) FICA taxes - Answers Payroll taxes withheld to provide Social Security and Medicare benefits progressive tax system - Answers Higher-income individuals pay a large fraction of their incomes in taxes marginal tax rate - Answers amount of tax payable on the next dollar earned budget deficit - Answers Outlays Revenues budget surplus - Answers Revenues Outlays monetary policy - Answers Use of money supply to influence the economy fiscal policy - Answers Use of government spending and taxes to influence the economy (must be legislated and approved) expansionary fiscal policy - Answers The government increases spending or decreases taxes to stimulate or expand the economy contractionary fiscal policy - Answers The government decreases spending or increases taxes to attempt to slow the economy. countercyclical fiscal policy - Answers -Expansionary policy during recessions -Contractionary policy during expansions multipliers - Answers -Spending by one person becomes income to others -Increases in income lead to increases in consumption Marginal Propensity to Consume (MPC) - Answers A portion of additional income that is spent on consumption