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Test Three
Chapters 10-14 in Introduction to Macroeconomics - Dolan
49
Economics
Undergraduate 3
05/01/2014

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Term
Aggregate Demand
Definition
total real planned expenditure
Term
Aggregate Supply
Definition
total real output of final goods and services (real GDP)
Term
Aggregate Demand Curve
Definition
a graph showing the relationship between aggregate demand and the aggregate price level
Term
Fiscal Policy
Definition
policy that is concerned with government purchases, taxes, and transfer payments
Term
Transmission Mechanism
Definition
the set of channels through which monetary policy affects aggregate demand
Term
Aggregate Supply Curve
Definition
a graph showing the relationship between real output (real domestic product) and the average price level of final goods
Term
Input Prices
Definition
a measure of the average prices of labor, raw materials, and other inputs that firms use to produce goods and services
Term
Fine-Tuning
Definition
an economice policy strategy that attempts to avoid even small, short-run departures from full employment and price stability
Term
Inside Lags
Definition
delays between the time a problem develops and the time policymakers decide what to do about it
Term
Outside Lags
Definition
delays between the time policymakers reach a decision and the time the resulting policy action affects the economy
Term
Time-Inconsistency
Definition
tendency of policymakers to take actions that have desirable results in the short-run, but undesirable long-run results
Term
Policy Rules
Definition
a set of rules for monetary and fiscal policy that specifies in advance the actions that policymakers will take in response to economic developments
Term
Policy Instrument
Definition
a variable directly under the control of policymakers
Term
Operating Target
Definition
a variable that responds immediately to these of a policy instrument
Term
Intermediate Target
Definition
a variable that responds to the use of a policy instrument or a change in operating target with a significant lag
Term
Policy Goal
Definition
A long-run objective of economic policy that is important for economic welfare
Term
Monetarism
Definition
a school of economic thought that emphasized the importance of the quantity of money and advocated the use of stable rules for monetary policy
Term
Inflation Targeting
Definition
a strategy for stabilization policy that focuses on holding the rate of inflation within a target range
Term
Taylor Rule
Definition
a rule that adjusts monetary policy according to change in the rate of inflation and the output gap (or unemployment)
Term
NGDP Targeting
Definition
a policy under which the central bank adopts the rate of growth of nominal GDP as its principal intermediate target
Term
Accommodating Monetary Policy
Definition
a policy in which the central bank holds interest rates constant in response to a fiscal stimulus
Term
Crowding-Out Effect
Definition
the tendency of expansionary fiscal policy to raise the interest rate and thereby cause a decrease in real planned investment
Term
Discretionary Fiscal Policy
Definition
changes in the laws regarding government purchases and net taxes
Term
Automatic Fiscal Policy
Definition
changes in government purchases or net taxes that are the results of changes in economic conditions, given unchanged tax and spending laws
Term
Automatic Stabilizers
Definition
those elements of automatic fiscal policy that move the federal budget toward deficit during an economic contraction and toward surplus during an expansion
Term
Structural Budget Balance
Definition
the deficit or surplus that would prevail in any year given that year's tax
Term
Cyclical Budget Balance
Definition
the difference between the actual budget balance in a given year and the structural balance that would have prevailed with the same tax and spending laws
Term
Fiscal Year
Definition
the federal government's budgetary year, which starts on October 1 of the preceding calendar year
Term
Entitlements
Definition
federal benefit programs such as social security and Medicare that are not subject to the annual budget process
Term
Tax Expenditure
Definition
a tax deduction or other tax preference that the government enacts to induce households or firms to behave in a way that serves some purpose of public policy
Term
Infrastructure
Definition
the shared physical systems, such as roads power grids, and water systems on which economic activity depends
Term
Sustainable
Definition
a financial position is sustainable if it maintains a pattern of income and expenditures that can continue over time without leading to insolvency
Term
Government Budget Constraint
Definition
the relationship between what the government buys and the sources of funds needed to make the purchases
Term
Monetizing the Deficit
Definition
financing government spending through an increase in the monetary base
Term
Fiscal Consolidation (Fiscal Austerity)
Definition
the process of reducing government spending and increasing taxes by enough to make the deficit sustainable
Term
Balanced Budget Amendment
Definition
any of a number of proposals to amend the US constitution in a way that would require the federal government to limit its spending each year to the amount of tax revenue that it receives
Term
Demand-Side Inflation
Definition
inflation caused by an upward shift of the aggregate demand curve while the aggregate supply curve remains fixes or shifts upward at no more than an equal rate
Term
Supply-Side Inflation
Definition
inflation that begins with an upward shift in the aggregate supply curve while the aggregate demand curve remains fixed or shifts upward more slowly
Term
Supply Shock
Definition
an event not arising from changes in aggregate demand that changes the average level of expected input prices
Term
Inflation Inertia (Inflation Momentum)
Definition
a tendency of firms and workers to expect prices to continue rising in the future at the same rate as in the immediate past
Term
Inflationary Recession
Definition
an episode in which real output falls toward or below its natural level and unemployment rises toward or above its natural rate while rapid inflation continues
Term
Phillips Curve
Definition
a graph showing the relationship between the inflation rate and the unemployment rate, other things being equal
Term
Hyperinflation
Definition
very rapid inflation
Term
Exchange-Rate Based Stabilization (ERB Stabilization)
Definition
a policy that uses a fixed exchange rate as the principal tool for ending hyperinflation
Term
Demand-Side Deflation
Definition
a period of falling prices caused by a decrease in aggregate demand
Term
Supply-Side Deflation
Definition
a period of falling prices cause by a decrease in the expected costs of production
Term
Zero Interest Rate Bound (ZIRB)
Definition
the principle that nominal rates cannot fall below zero
Term
Liquidity Trap
Definition
a situation in which monetary policy loses its effectiveness as nominal interest rates approach zero
Term
Quantitative Easing
Definition
the use of central bank policies that increase the quantity of bank reserves and money in order to stimulate the economy after interest rates have hit the zero bound
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