Ch 36 – Current Issues in Macro Theory and Policy – Flashcards
Unlock all answers in this set
Unlock answersquestion
macroeconomic view that the main cause of changes in aggregate output and price level is fluctuations in the money supply, espoused by advocates of a monetary rule
answer
monetarism
question
fundamental equation of monetarism: MV = PQ, where M is the supply of money, V is the velocity of money, P is the price level, and Q is the physical volume/quantity of all goods and services produced
answer
equation of exchange
question
average number of times per year that a dollar is spent on final goods and services
answer
velocity
question
theory that holds business fluctuations result from significant changes in technology and resource availability. These changes affect productivity and thus the long-run growth trend of aggregate supply.
answer
real-business-cycle theory
question
people fail to reach a mutually beneficial equilibrium because they lack a way to coordinate their actions.
answer
coordination failures
question
businesses, consumers, and workers expect changes in policies and circumstances to have certain effects on the economy and, in self interest, take actions to make sure those changes affect them as little as possible
answer
rational expectations theory
question
when the economy occasionally diverges from its full-employmentwill automatically move it back to that output.
answer
new classical economics
question
unanticipated changes in the price level
answer
price level surprises
question
wage that minimizes the firms labor cost per unit output
answer
efficiency wage
question
outsiders may not be able to underbid existing wages because employers may view the nonwage cost of hiring them to be prohibitive
answer
insider-outsider theory
question
rule that states the Fed should expand the money supply each year at the same annual rate as the typical growth of the economy's production capacity.
answer
monetary rule
question
Fed would be required to announce a targeted band of inflation rates, such as 1 to 2 percent for the following 2 years. It would then use monetary policy to keep inflation rates within that range. In the event of failure, the Fed must explain why it failed.
answer
inflation targeting
question
Rule specifies how the Fed should alter theFederal funds rate under differing economic circumstances
answer
Taylor Rule
