Chapter 18

Question 1

Inside lags

Answer 1

The time between the shock hitting the economy and the policy action taken to respond to the shock.

Question 2

Outside lags

Answer 2

The time between a policy action and its influence on the economy.

Question 3

Automatic stabilizers

Answer 3

A policy that reduces the amplitude of economic fluctuations without regular and deliberate changes in economic policy; for example, an income tax system that automatically reduces taxes when income falls.

Question 4

Lucas critique

Answer 4

The argument that traditional policy analysis does not adequately take into account the impact of policy changes on people’s expectations.

Question 5

Political business cycle

Answer 5

The fluctuations in output and employment resulting from the manipulation of the economy for electoral gain.

Question 6

Time inconsistency

Answer 6

The tendency of policymakers to announce policies in advance in order to influence the expectations of private desiosionmakers, and and then to follow different policies after those expectations have been formed and acted upon.

Question 7

Monetarists

Answer 7

Economists that advocate that the Fed keep the money supply growing at a steady rate.

Question 8

Inflation targeting

Answer 8

A monetary policy under which the central bank announces a specific target, or target range, for the inflation rate.