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

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cyclically adjusted budget balance
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an estimate of what the budget balance would be if real GDP were exactly equal to potential output
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government debt
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accumulation of past budget deficits minus past budget surpluses
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public debt
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government debt held by individuals and institutions outside the government
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debt-GDP ratio
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government's debt as a percentage of GDP
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implicit liabilites
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spending promises made by governments, which are effectively a debt despite the fact that they are not included in the usual debt statistics
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expansionary
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The following conditions are characteristic of which monetary policy? increased money supply lower interest rates higher investment spending raises income higher consumer spending
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contractionary
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The following conditions are characteristic of which monetary policy? decreased money supply higher interest rates lower investment spending reduces income lower consumer spendin
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Taylor rule
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rule for monetary policy setting the federal funds that takes into account both the inflation rate and the output gap
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inflation targeting
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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
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increase the money supply
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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
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price stability
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Which of the following is a goal of monetary policy? zero inflation deflation price stability increased potential output decreased actual real GDP
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monetary neutrality
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concept in which changes in the money supply have no real effects on the economy
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10%
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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%
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have no real effect on the economy
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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
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increased aggregate demand
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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
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Keynesian
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Which economic model/school of thought believe that sticky prices and wages slow the economy;s process of self-correction?
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inflation tax
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reduction in the value of money held by the public caused by inflation
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cost-push inflation
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inflation caused by a significant increase in the price of an input with economy-wide importance
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demand-pull inflation
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inflation caused by a significant increase in aggregate demand with economy-wide importance
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seigniorage
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profit made by a government by printing money, especially the difference between the face value of currency and their production costs
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short run Phillips curve
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curve which shows the negative relationship between the unemployment rate and the inflation rate
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NAIRU
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(abbreviation for) the unemployment rate at which inflation does not change over time
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long run Phillips curve
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curve which shows the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience
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debt deflation
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reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation
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liquidity trap
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situation in which conventional monetary policy is ineffective because nominal interest rates are up against the zero bound
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Keynesian economics
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Which school of thought (type of economics) focuses on the ability of shifts in aggregate demand to influence aggregate output in the short run?
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Macroeconomic policy activism
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use of monetary and fiscal policy to smooth out the business cycle legitimized by Keynesian economics
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monetarism
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Which school of thought or movement asserted that GDP will grow steadily if the money supply grows steadily?
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discretionary monetary policy
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type of monetary policy which involves changes in the interest rate or the money supply by the central bank to stabilize the economy
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monetary policy rule
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a formula that determines the central bank's action, leaving the bank with little discretion
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quantity theory of money
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theory which emphasizes the positive relationship between the price level and the money supply relies on velocity equation
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velocity equation
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Name the equation: M*V=P*Y
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velocity of money
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ratio of nominal GDP to the money supply measure of the number of times the average dollar bill is spent per year
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natural rate hypothesis
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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
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new classical macroeconomics
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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
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new Keynesian economics
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Which school of thought (type of economics) believes that market imperfections can lead to price stickiness for the economy as a whole?
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real business cycle theory
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Which theory claims that fluctuations in the rate of growth of total factor productivity cause the business cycle?
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short
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The modern consensus is that monetary and fiscal policy are both effective in the _______ run.
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long
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The modern consensus is that neither monetary nor fiscal policy can reduce the unemployment rate in the ______ run.
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inadvisable
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Discretionary fiscal policy is considered generally __________ (advisable/inadvisable), except in special circumstances.
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Classical
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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?
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Public debt
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What kind of debt (public or private) may crowd out investment spending, which reduces long run economic growth?
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Social Security Medicare Medicaid
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What are the U.S. government's largest implicit liabilities?
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