Term
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Definition
| an exchange rate whose value is not officially fixed but varies according to the supply and demand for the currency in the foreign exchange market |
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Term
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Definition
| an exchange rate whose value is fixed by official government policy |
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Term
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Definition
| the theory that nominal exchange rates are determined as necessary for the law of one price to hold. |
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Term
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Definition
| a massive selling of domestic currency assets by financial investors |
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Term
| business cycle stages include |
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Definition
| peak, trough, expansion, boom |
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Term
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Definition
| beginning of a recession, the high point of economic activity prior to a downturn |
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Term
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Definition
| the end of a recession, the low point of economic activity prior to an recovery |
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Definition
| a period in which the economy is growing at a rate significantly above normal |
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Term
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Definition
| a particularly strong and protracted expansion |
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Term
| characteristics of business cycle stages |
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Definition
| irregular in length, difficult to predict, widespread impacts, unemployment rises sharply during recession and falls during expansion, recessions followed by a decrease in inflation and proceeded by increase in inflation. durable good industries are more affected by expansions and recessions |
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Term
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Definition
| each extra percentage point of cyclical unemployment is associated with two times increase in output gap |
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Term
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Definition
| the amount of output that an economy can produce when using its resources such as capital, labor and normal rates |
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Term
| natural rate of unemployment |
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Definition
| attributable to frictional and structural unemployment, prevails when cyclical unemployment is 0 so the economy has neither recessionary (pos cyc) or expansionary (neg cyc) gap. |
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Term
| actual investment vs. planned investment |
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Definition
| output is determined by PAE actual expenditures may not equal PAE |
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Term
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Definition
| portion of PAE that is independent of output |
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Term
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Definition
| portion of PAE that depends on output (Y) (or CIGNX) |
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Term
| income-expenditure multiplier |
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Definition
| the effect of a one unit increase in autonomous expenditures on short-run equilibrium output. |
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Term
| qualifications to fiscal policy |
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Definition
| changes in government purchases and changes in taxes or transfer payments |
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Term
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Definition
| describes how the action of policy-maker takes depends on the STATE OF THE ECONOMY |
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Term
| portfolio allocation decision |
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Definition
| the decision about the forms in which to hold one's wealth |
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Term
| Lower interest rates _____ PAE. Higher interest rates _____ PAE |
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Definition
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Term
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Definition
| shows relationship between the aggregate quantity of money demanded (M) and the nominal interest rate (i) because an increase in i decreases opportunity costs of holding money, which reduces the W of money demanded, the money demand curve slopes down |
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Term
| Marginal Propensity to consume |
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Definition
change in C
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change in after tax |
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Term
| if us stocks become riskier, us dollar _____ |
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Definition
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Term
| economy enters a recession, the demand for US dollars _____. |
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Definition
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Term
| online banking allows customers to check balances 24/7, |
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Definition
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Term
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Definition
| the difference between the economy's potential output and its actual output (Y*-Y) |
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Term
| Taxes and transfers affect PAE |
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Definition
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Term
| tax cuts _____ recessionary gaps |
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Definition
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Term
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Definition
Change in spending
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MPC |
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Term
| 3 qualifications of fiscal policy |
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Definition
affects potential output as well as PAE
the need to avoid large and persistent budget deficits
fiscal policy is not always flexible enough to be useful for stabilizing |
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Term
| Expenditure line (ie- PAE= 200+.8y) intercept = |
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Definition
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Term
| the larger the mpc, the ____ income multiplier and _____ effect of change in autonomous spending on short-run equilibrium output |
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Definition
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Term
| to close a $10 million gap, govt purchases must be |
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Definition
| increased by less than 10 million |
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Term
| in basic keynesian model, a tax increase |
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Definition
| reduces short fun equilibrium output |
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Term
| when real output decreases, PAE decreases because |
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Definition
| induced expenditures decrease. |
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