MACROeconomics

Question 1

debt deflation

Answer 1

reduction in AD because of the increase in outstanding debt caused by deflation.

Question 2

zero bound

Answer 2

on nominal interest rate; cannot go below zero

Question 3

liquidity trap

Answer 3

situation where conventional monetary policy is ineffective bc nominal interest rates are up against the zero bound.

Question 4

NAIRU

Answer 4

nonaccelerating inflation rate of unemployment, unemployment rate at which inflation does not change over time.

Question 5

long-run phillips curve

Answer 5

shows the relationship between unemployment and inflation after inflation expectations have some time to adjust to experience.

Question 6

short-run Philips curve

Answer 6

negative short run relationship between unemployment rate and rate if inflation.

Question 7

cost-push inflation

Answer 7

sig. increase in price of an input with economy wide importance.

Question 8

demand-pull inflation

Answer 8

caused by increase in AD

Question 9

inflation tax

Answer 9

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

Question 10

classical model of the price level

Answer 10

real quantity of money is always at its LReq

Question 11

monetary neutrality

Answer 11

changes in the money supply have no effects on the economy.

Question 12

inflation targeting

Answer 12

when central bank sets a target for the inflation rate and sets monetary policy in order to hit that target.

Question 13

expansionary monetary policy

Answer 13

increases aggregate demand

Question 14

contractionary monetary policy

Answer 14

reduces aggregate demand

Question 15

target federal funds rate

Answer 15

the fed can move the the interest rate through the open market operations that shift the money supply curve.

Question 16

implicit liabilities

Answer 16

spending promises made by the gov that are effectively s debt despite the fact that they are not included in the usual debt statistics.

Question 17

public debt

Answer 17

gov debt held by individuals and institutions outside the gov.

Question 18

price floor

Answer 18

gov imposed limit on how low a price can be

Question 19

price celing

Answer 19

gov imposed limit on how high prices can be

Question 20

excise tax

Answer 20

tax on specific good at the time it is purchased

Question 21

income tax

Answer 21

tax on income, changes as income changes.

Question 22

tariff

Answer 22

tax on imports

Question 23

quota

Answer 23

limits on how much of a good can be imported

Question 24

potential output

Answer 24

output of economy at full employment.

Question 25

per capita output

Answer 25

total output / total population

Question 26

frictional unemployment

Answer 26

always exists, people are searching for new job.

Question 27

nominal interest rate

Answer 27

real In. Rt. + inflation rate

Question 28

consumption

Answer 28

bought goods produced by businesses from households

Question 29

investment

Answer 29

businesses borrow the money households save from their income and invest it.

Question 30

Gov. Expenditures

Answer 30

gov payments for goods and services

Question 31

nominal GDP

Answer 31

gdp at existing prices

Question 32

real GDP

Answer 32

GDP adjusted for inflation

Question 33

wealth effect

Answer 33

as the price level falls the real wealth people hold increases as they consume more.

Question 34

interest rate

Answer 34

decrease in price level leads to decreased interest rates which increases investment expenditures.

Question 35

multiplier effect

Answer 35

amplifies initial changes in expenditures.

Question 36

AS curve slopes up BC?

Answer 36

Higher levels of prices prompts more goods produced.

Question 37

MPC

Answer 37

change in consumption/change in income

Question 38

fiscal policy

Answer 38

gov controlling AD

Question 39

in order to get out of a recessions according to KEYNES....

Answer 39

gov must take an active role in encouraging demand by either increasing gov spending or decreasing taxes.

Question 40

crowding out

Answer 40

where government expenditures is offset by the negative change in private expenditures.

Question 41

nominal deficit

Answer 41

shortfall of revenues in one year

Question 42

nominal surplus

Answer 42

excess of revenues over payments in one year

Question 43

DEBT

Answer 43

accumulated deficits minus accumulated surplusses

Question 44

real deficit

Answer 44

nominal deficit - (inflation * total debt)

Question 45

money supply is vertical because...?

Answer 45

it was chosen by the fed

Question 46

money demand is downward sloping bc...?

Answer 46

as interest rates rise people desire to hold less money

Question 47

money is highly liquid because...?

Answer 47

it can easily be exchanges for other assets

Question 48

M1

Answer 48

currency in the hands of public, checking account balances

Question 49

M2

Answer 49

M1 + savings account deposits & mutual funds shares.

Question 50

M3

Answer 50

M2 plus foreign deposits

Question 51

reserves

Answer 51

cash and deposits bank keeps on hand to manage normal cash inflows and outflows

Question 52

reserve ratio

Answer 52

percentage of deposits bank is required to hold.

Question 53

money multiplier

Answer 53

1/rr

Question 54

by decreasing the reserve req. ratio.... (what happens to money supply?)

Answer 54

fed increases amount of excess reserves and money supply is increased

Question 55

increase in the discount rate will...

Answer 55

make borrowing more expensive for banks and will increase banks reserves.

Question 56

to expand the money supply what open market operation will the FED take?

Answer 56

Buy Bonds.

Question 57

Expansionary monetary policy

Answer 57

decrease rr, decrease discount rate, buy bonds to expand the money supply which will decrease interest rates and raise income.

Question 58

contractionary monetary policy

Answer 58

increase rr, increase the discount rate, sell bonds, which contracts the money supply which will raise interest rates and lower income.

Question 59

inflation

Answer 59

MV=PQ money supply times velocity of money equals price level times quantity of real goods sold.

Question 60

philips curve

Answer 60

expresses relationship between inflation and unemployment. only a trade off in the short run.