FINAL EXAM

Question 1

the real quantity of money is always at its long run equilibrium model

Answer 1

classic model of the price level

Question 2

the real quantity of money - M/P

Answer 2

m= nominal money supply

p=aggregate price level

Question 3

the reduction in the real value of money held by the public caused by inflation, equal to the inflation rate times the money supply, on those who hold money.

Answer 3

inflation tax

Question 4

inflation rate times the real money supply

Answer 4

rela inflation tax

Question 5

high inflation arises when the government must print a large quantity of money to cover a large budget deficit

Answer 5

hyperinflation

Question 6

the negative short run relationship between the unemployment rate and the inflation rate

Answer 6

short-run phillips curve

Question 7

negative vs. positive supply shocks

Answer 7

negative-shifts upward

positive-shifts downward

Question 8

the rate that employees and workers expect in the near future.

Answer 8

expected rate of inflation

Question 9

the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience.

Answer 9

long run Phillips curve

Question 10

the unemployment rate at which inflation does not change over time.

Answer 10

NAIRU (nonaccelerating inflation rate of unemployment)

Question 11

the portion of the unemployment rate unaffected by the swings of the business cycle.

Answer 11

the natural rate of unemployment

Question 12

once inflation has become embedded in expectations, getting inflation back down can be difficult

Answer 12

disinflation

Question 13

revenue generated by the government’s right to print money

Answer 13

seignorage

Question 14

investment banks, hedge funds, and money market funds that do not take deposits from consumers.
a nondepository financial institution that engages in maturity transformation

Answer 14

shadow banks

Question 15

occurs when a large part of the depository banking sector or the shadow banking sector fails or threatens to fail.

Answer 15

banking crisis

Question 16

the price of an asset is pushed to an unreasonably high level due to expectations of further price gains

Answer 16

asset bubble

Question 17

a vicious downward spiral among depository and shadow banks

Answer 17

financial contagion

Question 18

a sudden and widespread disruption of financial markets that happens when people lose faith in the liquidity of financial institutions and markets

Answer 18

financial panic

Question 19

a reduction in the availability of credit

Answer 19

credit crunch

Question 20

a banking crisis that leaves consumers and businesses with high debt and diminished assets

Answer 20

debt overhang

Question 21

an institution that provides funds to financial institutions when they are unable to borrow from the credit markets

Answer 21

lender of last resort

Question 22

3 consensus answers on macroeconomics

1. ) monetary policy should play the main role in stabilization policy
2. ) The central bank should be independent
3. )Discretionary fiscal policy should be used sparingly

Answer 22

things macroeconomists agree on

Question 23

monetary and fiscal policy are both effective in the short run, but that neither can reduce the unemployment rate in the long run.

Answer 23

the modern consensus