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Stack #2057450
Section 6- Inflation, Unemployment, and Stabilization Policies
Question | Answer |
---|---|
The budget deficit almost always ___ when unemployment rate ___ | rises, falls/rises, falls (direct relationship) |
What are the main reasons of concern for repeated deficits? | 1. Crowding out effect 2. future budget plans |
How can government pay off its debt? | 1. borrow from other banks 2. raise taxes, cut spending 3. printing money (risk of inflation) |
Cyclically adjusted budget balance... | an estimate of the budget balance if the economy when at full potential, separates effects of the business cycle |
debt-GDP ratio.. | widely used measure of fiscal health which remains stable or fall depending on growth of GDP over time |
implicit liabilities.. | spending promises made by government that are effectively a debt but not included in debt statistics (Social security, Medicare) |
When money supply ___, the interest rate ___ | increases, decreases |
target federal funds... | rate the Federal Reserve uses to impact money supply and interest rate |
The aggregate demand curve shifts in the ___ direction as the money supply curve when the Fed conducts monetary policy | same |
monetary neutrality.. | changes in the money supply have no real effect on the economy, only on LR-price level |
inflation tax.. | reduction in the value of money held by the public caused by inflation |
cost push inflation | AS shifts to the left |
demand pull inflation | AD shifts right |
Three stages our economy is always in.. | 1.Recessionary gap 2. Inflationary gap 3. Equilibrium |
There is an ___ relationship b/w inflation and unemployment.. | inverse |
Frictional + Structural = | 5% of natural rate of unemployment |
Every time AD curve shifts right or left, we must show ___ along SRPC | movement |
Every time SRAS curve shifts left or right, we must show ___ along SRPC | shift |
A negative supply shock shifts the SRPC ___, and a positive supply shock shifts the SRPC ___ | up, down |
NAIRU... | nonaccelaerating inflation rate of unemployment |
What is the relationship between inflation and unemployment in the long run? | There is no tradeoff b/w inflation and unemployment in the long run. |
Government spending increases | Draw the effect on Phillips curve |
The price of crude oil and most sources of energy decreases | Draw the effect on Phillips curve |
Inflation expectations rise from 3% to 6% | Draw the effect on Phillips curve |
The Fed increases interest rates with contractionary monetary policy | Draw the effect on Phillips curve |
Inflation expectations fall from 5% to 2% | Draw the effect on Phillips curve |
The government increases income taxes | Draw the effect on Phillips curve |
Tornadoes strike the South and the Midwest destroying much of the nation's manufacturing ability | Draw the effect on Phillips curve |
Consumer confidence falls amid the news of political squabbling | Draw the effect on Phillips curve |
What is the definition of the long run in Macroeconomics? | "flexible wage in price" period |
Personal income taxes increase | Draw the effect on AD-AS graph and Phillips curve |
Cost push inflation | AS shifts left |
Demand pull inflation | AD shifts right |
Disinflation | process of bringing down the rate of inflation that has become embedded in expectations |
What is deflation and who is hurt/helped by it? | Deflation is the falling aggregate price level. Lenders benefit under deflation since the real value of borrower's payments increase. Borrowers lose b/c the real burden of their debt increases. It reduces aggregate demand. |
Quantity theory of money | demonstrates positive relationship b/w price level and money supply: MV=PY |
Discretionary monetary policy | adjusting interest rate or money supply by central bank to stabilize economy |
Governments that run large deficits can.. | finance the deficit by printing money |
Modern consensus in macroeconomics | Prices are flexible in the long run but are likely to be sticky in the short run; in the long run, the macro economy will produce at the full employment level of output |
monetary policy rule | central bank uses a formula that determines its actions |