AP Macroeconomics: Ch. 6 – Flashcards

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assets
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An object that a business, household, or government owns, such as a building, equipment, or a loan made to others
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Balance sheet
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a system of keeping track of a business's assets and liabilities over time
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Bank Deregulation Act of 1980
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A law enacted by Congress that introduced several changes into the banking sector such as the requirement that all banks follow the required reserve ratio that the Feds mandate
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Bank run
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A situation in banking in which a bank's depositors want to remove all their deposits at the same time; since a fractional reserve bank does not keep all its depositors fund, it cannot deal with this situation and is forced out of business
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Check clearing
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The process of taking checks deposited at one bank, sending the, to their issuers' bank, and adjusting the banks' Federal Reserve accounts in order to transfer the funds between them
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Checking account
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Money a household deposits at a bank; the household can make purchases using checks drawn on account. The recipient of a check presents it to the bank and receives money, which the bank deducts from the household's checking account
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Commodity Money
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Money that has uses in addition to being a medium of exchange, a unit of account, and a store of value. in other words, money that has intrinsic value
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Credit card
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A card that can be used to purchase goods and services electronically; the credit card company reimburses the vendor and issues a loan to the purchaser
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Credit Union
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A type of financial intermediacy that only accepts deposits from and only makes loans to certain types of workers
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Currency in Circulation
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The paper money and coins used to pay for daily expenditures in the economy
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Debit card
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A card that can be used to purchase goods and services electronically; the bank reimburses the vendor that accepts the debit card as payment and then deducts that purchase from a checking account
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Demand deposits
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Checking account deposits ; traditionally, these deposits do not earn interest
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Discount rate
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The interest rate the Fed charges to banks fir discount window loans
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Discount Window Loan
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An overnight loan issued by the Fed to allow a bank to meet its reserve requirement at the end of the day
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Disintermediation
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A situation that occurs when depositors withdraw their money from financial intermediaries
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Excess Reserves
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The total deposits at a bank minus its required reserves
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Federal Deposit Insurance Corporation (FDIC)
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An insurance program administered by the federal government that guarantees up to $100,000 of an individual's deposits in a bank
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Federal funds market
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A loanable funds market in which banks borrow and lend funds to other banks
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Federal Open Market Committee (FOMC)
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A group composed of the Board if Governors, the president of New York district's Fed bank, and the presidents of four other Fed district banks. This group selects the open market monetary policy the Federal Reserve will implement
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Federal Reserve Act of 1913
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A law enacted in 1913 that established the Federal Reserve and made it responsible for providing money for economic activity and overseeing the health of banks and the economy
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Federal reserve board of Governors
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A group of seven governors, each of whom is appointed by the president and confirmed by the Senate to one, 14-year term. The board helps to manage the Federal Reserve
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Federal Reserve District Bank
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A part of the Federal Reserve that implements its policy and keeps track if economic activity for a certain geographic region of the nation
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Federal Savings and Loan Insurance Corporation (FSLIC)
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A now defunct insurance program administered by the federal government, similar to FDIC except it insured deposits at savings and loan associations; it went bankrupt during the Saving and Loan Crisis of 1980s
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Fiat Money
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Money that has no use besides being a medium of exchange, a unit of account, and a store of value. In other words, money with no intrinsic value
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Fractional reserve banking
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A banking system in which banks keep a small share ( a fraction) of their depositors' funds on hand (in reserve) and loan out the rest; banks do not keep all of their depositors funds
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Gold standard
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A type of fiat currency in which government agrees to buy and sell gold for currency it issues
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Gresham's law
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Bad money drives good money out of circulation; the type of commodity money that has the lowest intrinsic value will become the dominant type of money, and the money with the highest intrinsic value be hoarded rather used as money
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Large time deposits
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A financial instrument is similar to a savings account since it earns interest; the account is more than $100,000, the funds are deposited for less than 90 days but for a specified length of time, and theres a penalty for early withdraw of funds
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Lender of last resort
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A duty of the Federal Reserve, which is to lend funds to banks that cannot obtain the funds from anywhere else
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Liability
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An object that a business, households, or government owes such as a loan received from others
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Life insurance company
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A company that takes small amounts of money from a large group of policy holders, invests the money, and then pays large amounts of money to the beneficiaries of the small number of policy holders who die
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Liquidity
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The ease with which an asset can be converted into its full cash value
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M1
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A measure of the most liquid parts of the money stock; m1 is the sum of the currency in circulation, the value of demand deposits, and the value of traveler's checks
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M2
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A measure if the money stock; m2 = m1+less liquid forms of money, which include saving deposits, small time deposits, and money market mutual funds
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M3
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A measure of the money stock; M3 = M2 + near monies
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Money demand
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An inverse relationship that shows the amount of money households want to hold at various interest rates; at higher interest rates, people want to hold less money, and at lower interest rates people want to hold more money, ceteris paribus
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Money demand curve
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A graphical representation of money demand
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Money multiplier
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The increase or decrease in the money supply when the Fed increase or decreases excess reserves by one dollar; the reciprocal of the required reserve ratio
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Money stock
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The amount of money in an economy at a point in time
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Mortgage
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A longterm loan used to purchase real estate
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Near monies
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A group of least liquid types of money, such a large time deposits
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Net worth
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Assets minus liabilties
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Open market operations
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The sales and purchases if Treasury bonds by the Fed, with the intent of changing the money supply and interest rates
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Pension fund
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A financial organization that invests the savings of a large number of workers and then uses the funds to provide the workers with a source of income when they retire
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Portfolio motive
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The desire to hold money, instead of investing it in financial instrument, to diversify a household's portfolio of assets
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Precautionary Motive
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The desire to hold money, instead of investing it in a financial instrument, to pay for future unexpected expenditures
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Purchasing power
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The goods and service an amount of money can purchase
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Required reserve ratio
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The ratio of (a) the deposits a bank does not loan to other to (b) the total deposits at the bank; this ratio is determined by the government and must be met by all banks
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Saving account
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Money a household keeps in a bank to earn interest payments, to keep the money safe, and to all easy access to their funds
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Saving and loan association
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A type of financial intermediary that accepts the long-term deposits and specializes in making longterm loans for real estate purchases
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Savings and loan crisis
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A collapse of many saving and loan associations in the late 1980s caused by improper deregulation and risk investments; it required the federal government to spend large amounts if money to correct the situtation
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Small time deposits
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A financial instrument similar to a savings account since it earns interest; the account is less than $100,000, the funds are deposited for less than 90 days but for a specified length of time, and theres a penalty for early withdraw of funds
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Store of value
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An object that can be used to hold onto purchasing power
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Thrift
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A type of financial intermediary that uses depositors funds to make loans; credit union and saving and loan associations are types of thrifts
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Transaction Motive
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The desire to hold money, instead of investing it in a financial instrument, because money enable a households to purchase goods and services
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Traveler's Checks
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A check issued by a financial intermediary that household can use as they use a regular check
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Unit of account
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An object that can be used to measure the value of a good or service
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Velocity of money
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The number of times, on average, that a dollar is used to purchase final goods and services over a period of one year
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Bond re-sale market
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A market in which people can buy and sell bins that were previously issued
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Contractionary monetary policy
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Monetary policy with the goal of decreasing the money supply; this policy is usually used to deal with inflation
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Coupon payment
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Periodic interest payments made by bond issuers to bond holders
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Equation of exchange
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The quantity of money(M) multiplied by the money's velocity (v) equals nominal GDP, which equals the price level (P) multiplied by the real GDP(Q); M times V equals P times Q
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Equilibrium Interest Rate
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The interest rate at which the quantity of money supplied equals the quantity of money demanded; the money supply curve and money demand curve intersect at the equilibrium interest rate
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Expansionary Monetary Policy
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Monetary policy with the goal of increasing the money supply; this policy is usually used to deal with a recession
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Identity
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A relationship that is true by definition
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Maturity date
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The time at which the bond issuer pays the bond holder the money that was initially borrowed with the bond
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Monetarism
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The belief that the fed's monetary policy should be to grow the money supply at a constant rate
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Monetarist
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A person who believes in monetarism
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Money supply curve
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A graphical representation of money supply; since the Fed determines the money supply, the money supply curve is a vertical line
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New York Stock Exchange
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A large market in which people can buy and sell shares of stock of certain corporations
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Quantity theory of money
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A theory holding that a change in the money supply leads to a change in the price level, but nit to a change in RGDP
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Repurchase agreement
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A type of loan that a bank receives from its customers
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Treasury securities
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Bond issued by the US Treasury Department
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Paul Volcker
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The chairman of the Fed during the late 1970s and early 1980s who presided over a contradictory monetary policy to combat inflation
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Adaptive Expectations Theory
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The idea that people make their decisions based on information from the recent past
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Richard Brumberg
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(1930-1955) an economist who helped develop the life cycle theory of consumption concurrently with Friedman's development of the permanent income theory of consumption
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Milton Friedman
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(1912-) an american economist who advocates the laissez faire approach to fiscal policy and who developed the permanent income theory of consumption
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Full-Employment and Balanced Growth Act 1978
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A law that reiterated the intentions of the Employment Act if 1946
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Long-run Phillips curve
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Based on the natural rate hypothesis, the long-run Phillips curve is a vertical line at the natural rate of unemployment, on a graph comparing inflation and unemployment rates
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Franco Modigliani
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(1918-) an economist who helped to develop the life-cycle theory of consumption concurrently with Friedman's development of the permanent income theory of consumption
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Natural rate hypothesis
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Certain real variables have natural rates of growth that they follow in the long run; many times, this hypothesis refers to the assumption that there is a natural rate of unemployment to which the economy will always return, in the long run
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Permanent income theory of consumption
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The idea that people base their consumption decisions on the income they expect to earn over their lifetime; this is in contrast to the Keynesian approach of basing consumption on current income
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Phillips curve
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The graphical representation of a hypothesized inverse relationship between the unemployment rate and the rate if inflation
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Rational expectations theory
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The idea that people make their decisions based in all the information they can gather, including events form the recent past, new media reports, and their understanding of how the economy works
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Supply-side economics
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The idea that the government should encourage economic growth by using fiscal policies to alter aggregate supply, by reducing taxes and decreasing cumbersome regulations, for example
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