Econ Final

Front 1

Fixed Exchange Rate

Back 1

An exchange rate that is set by the central bank's willingness to buy and sell domestic currency for foreign currency at a predetermined price.

Front 2

Floating Exchange Rate

Back 2

An exchange rate that the central bank allows to change in response to changing economic conditions and economic policies.

Front 3

Devaluation

Back 3

An action by the central bank to decrease the value of currency under a system of fixed exchange rates.

Front 4

Revaluation

Back 4

An action undertaken by the central bank to raise the value of currency under a system of fixed exchange rates.

Front 5

Phillips Curve

Back 5

A negative relationship between inflation and unemployment.

Front 6

Adaptive Expectations

Back 6

an approach that assumes people form their expectations of future inflation based on recently observed inflation.

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Demand-Pull Inflation

Back 7

Inflation resulting from shocks to aggregate demand.

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Cost-Push Inflation

Back 8

Inflation resulting in shocks to the aggregate supply.

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Sacrifice Ratio

Back 9

The number of percentage points of a year's real GDP that must be forgone to reduce inflation by 1 percentage point.

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Rational Expectations

Back 10

People base their expectations on all available information, including information about current and prospective future policies.

Front 11

Hysteresis

Back 11

The long-lasting influence of history on variables such as the natural rate of unemployment.

Front 12

Automatic Stabilizers

Back 12

The changes in fiscal policy that stimulate AD when the economy goes into a recession without policymakers having to take any deliberate action.

Front 13

Political Business Cycles

Back 13

The fluctuations in output and employment resulting from the manipulation of the economy for electoral gain.

Front 14

Inflation Targeting

Back 14

A monetary policy under which the central bank announces a specific target for the inflation rate.

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Ricardian Equivalence

Back 15

The theory according to which forward-looking consumers fully anticipate the future taxes implied by government debt, so that government borrowing today coupled with a tax increase in the future repay the debt has the same effect on the economy as a tax increase today.

Front 16

Capital Budgeting

Back 16

An accounting procedure that measures both assets and liabilities.

Front 17

Life-Cycle Hypothesis

Back 17

The theory of consumption that emphasizes the role of saving and borrowing as transferring resources from those times in life when income is high to those times in life when income is low, such as working years to retirement.

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Permanent Income Hypothesis

Back 18

The theory of consumption according to which people choose consumption based on their permanent income, and use saving and borrowing to smooth consumption in response to transitory variations in income.

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Efficient Market Hypothesis

Back 19

The theory that asset prices reflect all publicly available information about the value of an asset.