question

cyclically adjusted budget balance

answer

an estimate of what the budget balance would be if real GDP were exactly equal to potential output

question

government debt

answer

accumulation of past budget deficits minus past budget surpluses

question

public debt

answer

government debt held by individuals and institutions outside the government

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debt-GDP ratio

answer

government's debt as a percentage of GDP

question

implicit liabilites

answer

spending promises made by governments, which are effectively a debt despite the fact that they are not included in the usual debt statistics

question

expansionary

answer

The following conditions are characteristic of which monetary policy? increased money supply lower interest rates higher investment spending raises income higher consumer spending

question

contractionary

answer

The following conditions are characteristic of which monetary policy? decreased money supply higher interest rates lower investment spending reduces income lower consumer spendin

question

Taylor rule

answer

rule for monetary policy setting the federal funds that takes into account both the inflation rate and the output gap

question

inflation targeting

answer

method of setting monetary policy in which the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target

question

increase the money supply

answer

Which of the following actions can the Fed take to decrease the equilibrium interest rate? increase the money supply increase money demand decrease the money supply decrease money demand

question

price stability

answer

Which of the following is a goal of monetary policy? zero inflation deflation price stability increased potential output decreased actual real GDP

question

monetary neutrality

answer

concept in which changes in the money supply have no real effects on the economy

question

10%

answer

A 10% decrease in the money supply will change the aggregate price level in the long run by 0% less than 10% 10% 20% more than 20%

question

have no real effect on the economy

answer

Monetary neutrality means that, in the long run, changes in the money supply cannot happen have no real effect on the economy increase real GDP change real interest rates

question

increased aggregate demand

answer

An increase in the money supply will lead to which of the following in the short run? higher interest rates decreased investment spending decreased consumer spending increased aggregate demand lower real GDP

question

Keynesian

answer

Which economic model/school of thought believe that sticky prices and wages slow the economy;s process of self-correction?

question

inflation tax

answer

reduction in the value of money held by the public caused by inflation

question

cost-push inflation

answer

inflation caused by a significant increase in the price of an input with economy-wide importance

question

demand-pull inflation

answer

inflation caused by a significant increase in aggregate demand with economy-wide importance

question

seigniorage

answer

profit made by a government by printing money, especially the difference between the face value of currency and their production costs

question

short run Phillips curve

answer

curve which shows the negative relationship between the unemployment rate and the inflation rate

question

NAIRU

answer

(abbreviation for) the unemployment rate at which inflation does not change over time

question

long run Phillips curve

answer

curve which shows the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience

question

debt deflation

answer

reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation

question

liquidity trap

answer

situation in which conventional monetary policy is ineffective because nominal interest rates are up against the zero bound

question

Keynesian economics

answer

Which school of thought (type of economics) focuses on the ability of shifts in aggregate demand to influence aggregate output in the short run?

question

Macroeconomic policy activism

answer

use of monetary and fiscal policy to smooth out the business cycle legitimized by Keynesian economics

question

monetarism

answer

Which school of thought or movement asserted that GDP will grow steadily if the money supply grows steadily?

question

discretionary monetary policy

answer

type of monetary policy which involves changes in the interest rate or the money supply by the central bank to stabilize the economy

question

monetary policy rule

answer

a formula that determines the central bank's action, leaving the bank with little discretion

question

quantity theory of money

answer

theory which emphasizes the positive relationship between the price level and the money supply relies on velocity equation

question

velocity equation

answer

Name the equation: M*V=P*Y

question

velocity of money

answer

ratio of nominal GDP to the money supply measure of the number of times the average dollar bill is spent per year

question

natural rate hypothesis

answer

theory which states that, to avoid accelerating inflation over time, the unemployment rate must be high enough that the actual inflation rate equals the expected inflation rate

question

new classical macroeconomics

answer

an approach to the business cycle that returns to the classical view that shifts in the aggregate demand curve affect only the aggregate price level, not the aggregate output

question

new Keynesian economics

answer

Which school of thought (type of economics) believes that market imperfections can lead to price stickiness for the economy as a whole?

question

real business cycle theory

answer

Which theory claims that fluctuations in the rate of growth of total factor productivity cause the business cycle?

question

short

answer

The modern consensus is that monetary and fiscal policy are both effective in the _______ run.

question

long

answer

The modern consensus is that neither monetary nor fiscal policy can reduce the unemployment rate in the ______ run.

question

inadvisable

answer

Discretionary fiscal policy is considered generally __________ (advisable/inadvisable), except in special circumstances.

question

Classical

answer

Which school of thought (type of economics) asserted that monetary policy affected only the aggregate price level, not aggregate output, and that the short run was unimportant?

question

Public debt

answer

What kind of debt (public or private) may crowd out investment spending, which reduces long run economic growth?

question

Social Security Medicare Medicaid

answer

What are the U.S. government's largest implicit liabilities?

AP Macroeconomics Section 6 (Modules 30-36) Key Terms (Krugman’s Textbook) – Flashcards

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