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AP Macro Unit 5
Term | Definition |
---|---|
Fiscal year | runs from October 1 to September 30 and is labeled according to the calendar year in which it ends |
public debt | government debt held by individuals and institutions outside the government |
debt-GDP ratio | the government's debt as a percentage of GDP |
implicit liabilities | spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics |
target federal funds rate | a desired level for the federal funds rate, uses open-market operations to achieve this target |
expansionary monetary policy | monetary policy that increases aggregate demand |
contractionary monetary policy | monetary policy that reduces aggregate demand |
Taylor rule for monetary policy | a rule for setting the federal funds rate that takes into account both the inflation rate and the output gap |
inflation targeting | when the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target |
monetary neutrality | changes in money supply have no real effects on the economy |
classical model of price level | the real quantity of money is always at its long-run equilibrium level |
inflation tax | a reduction in the value of money held by the public caused by inflation |
cost-push inflation | inflation that is caused by a significant increase in the price of an input with economy-wide importance |
demand-pull inflation | inflation that is caused by an increase in aggregate demand |
short-run Phillips Curve | the negative short-run relationship between the unemployment rate and the inflation rate |
debt deflation | the reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation |
zero bound | bound on the nominal interest rate that cannot go below zero |
liquidity trap | a situation in which conventional monetary policy is ineffective because nominal interest rates are up against the zero bound |
monetarism | asserts that GDP will grow steadily if the money supply grows steadily |
quantity theory of money | emphasizes the positive relationship between the price level and the money supply. It relies on the velocity equation (M x V = P x Y |
velocity of money | the ratio of nominal GDP to the money supply. It is a measure of the number of times the average dollar bill is spent per year |
political business cycle | results when politicians use macroeconomic policy to serve political ends |
rational expectations | the view that individuals and firms make decisions optimally, using all available information |
non accelerating inflation rate of unemployment (NAIRU) | the unemployment rate at which inflation does not change over time |
long-run Phillips Curve | the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience |