Macro Bm Chapter 9, 10, 11, 12, 13

Front 1

short-run fluctuations in output and employment

Back 1

business cycle

Front 2

ending date of a recession

Back 2

business cycle trough

Front 3

starting date of a recession

Back 3

business cycle peak

Front 4

for every percentage point the unemployment rate rises, real gdp growth falls by

Back 4

2%

Front 5

when unemployment rate rises from 5 to 7 percent, percentage change in real GDP=

Back 5

3% - 2x(7%-5%)

Front 6

average workweek length, average claims for UI, new orders for consumer goods, new orders for nondefense capital goods

Back 6

leading indicators

Front 7

index of supplier deliveries, new building permits issued, index of stock prices, M2 growth adjusted for inflation, interest rate spread, index of consumer expectations

Back 7

leading indicators

Front 8

irrelevance of the money supply for the determination of real variables

Back 8

monetary neutrality

Front 9

relationship between the quantity of output
demanded and the aggregate price level

Back 9

aggregate demand

Front 10

the quantity of goods and services people want to buy at any given

Back 10

aggregate demand

Front 11

Back 11

k is 1/V, states that supply of real money balances (m/p) equals demand for real money

Front 12

left axis of AD curve ___, right axis of AD curve _

Back 12

price level, income/output/Y

Front 13

Why does the AD curve slope downward

Back 13

When M and V are fixed if P goes up Y must go down by the equality -- intuition is that price level rising means each transaction requires more dollars such that quantity purchased must fall

Front 14

is the relationship between the quantity of goods
and services supplied and the price level

Back 14

aggregate supply

Front 15

the Long run aggregate supply is _______

Back 15

vertical because output does not depend on the price level

Front 16

LRAS is fixed at the _____ level of output

Back 16

natural or full-employment

Front 17

policy actions aimed at reducing the severity of short-run economic fluctuations.

Back 17

stabilization policy

Front 18

introduction of credit cards has what effect on aggregate demand?

Back 18

reduce quantity of money people hold, which increases velocity, decreasing parameter k, thus aggregate demand shifts outward

Front 19

union aggressiveness, environmental regulation, oil cartels, drought

Back 19

adverse supply shocks

Front 20

government debt does not influence national
saving and capital accumulation

Back 20

recardian equivalence

Front 21

causes of deficit

Back 21

age composition, rising healthcare costs

Front 22

The budget deficit includes the change in debt as a result of

Back 22

inflation, (pi)D is extent of over-statement of debt

Front 23

measurement problems of debt/deficit

Back 23

inflation, capital assets, uncounted liabilities, business cycle

Front 24

capital asset problem of gov. debt?

Back 24

the budget deficit should be measured as the change in debt minus the change in assets.

Front 25

A budget procedure that accounts for assets as well as liabilities

Back 25

capital budgeting

Front 26

implicit debt not counted in deficit includes

Back 26

pensions, Social security

Front 27

the liability that is due only if student loans, low- and moderate-income families, and deposits in banks and savings in loan institutions are defaulted

Back 27

contingent
liability

Front 28

TARP, how it worked

Back 28

The Treasury borrowed money, gave the
money to the banks, and in exchange became a part owner of those banks. In
the future, the banks were expected to pay the Treasury a preferred dividend
(similar to interest) and eventually to repay the initial investment as well

Front 29

based on estimates of what government spending and tax revenue would be if the economy were operating at its natural level of output and employment

Back 29

cyclically adjusted budget deficit

Front 30

base their spending decisions not only on their
current income but also on their expected future income

Back 30

forward-looking Ricardian consumer

Front 31

reasons against Ricardian consumer

Back 31

myopia, future generations, and borrowing constraints

Front 32

why deficit or surplus is okay?

Back 32

stabilization of business cycle, tax smoothing, intergenerational redistribution

Front 33

benefits of indexed bonds

Back 33

less inflation risk, more financial innovation, better government incentives,
more informed monetary policy

Front 34

stimulates consumer spending and lowers national saving. This increase in consumer spending leads to greater aggregate demand and
higher income in the short run, but it leads to a lower capital stock and lower income in the long run.

Back 34

traditional view of government debt

Front 35

a debt-financed tax cut does not stimulate consumer spending because it does not raise
consumers’ overall resources—it merely reschedules taxes from the present
to the future.

Back 35

ricardian view of government debt

Front 36

cyclical low income and high unemployment caused by what according to Keynes

Back 36

aggregate demand

Front 37

LM stands for ________ and represents what's happening to _____________

Back 37

liquidity and money, supply and demand for money

Front 38

measures amount firms households and government spend on goods and services, equals GDP

Back 38

actual expenduture

Front 39

amount firms households and government would like to spend on goods and services

Back 39

planned expenditure

Front 40

planned expenditure is a function of _ _ _ _

Back 40

C(Y-t), I G

Front 41

slope of the planned expenditure function

Back 41

marginal compensity to consume

Front 42

Keynesian cross assumes that _________

Back 42

economy is in equilibrium when actual expenditure equals planned expenditure because when people's plans are realized they have no reason to change what they're doing.

Front 43

assumption of Keynesian cross that actual expenditure equals planned expenditure holds when _______________

Back 43

45 degree line intersection with Planned Expenditure function

Front 44

to the right of intersection of Keynesian cross

Back 44

unplanned inventory accumulation causes income to fall because firm accumulation of inventory induces firms to decrease production

Front 45

to the left of intersection of Keynesian cross

Back 45

unplanned drop in inventory causes income to rise because firms increase production

Front 46

the ratio change in Y to change in G (dY/dG), measures how much income rises with a $1 increase in G

Back 46

government purchases multiplier

Front 47

why does fiscal policy have a multiplied effect on income?

Back 47

in consumption function c(Y-T) higher income causes higher consumption --- eg dG+MPC.G+MPC(MPC.G)+.... feedback effect

Front 48

government purchases multiplier =

Back 48

dY/dG=1+MPC+MPC^2+MPC^3... = 1/(1-MPC)

Front 49

tax multiplier +

Back 49

-MPC / (1 - MPC)

Front 50

things that shift the PE curve up ...

Back 50

decrease in taxes, increase in G

Front 51

Back 51

derivation of the tax multiplier

Front 52

Back 52

derivation of government purchases multiplier

Front 53

argue that economic boom resulted from incentive effects to work more from the income tax cut

Back 53

supply siders

Front 54

why is increasing G better than decreasing T

Back 54

government purchases multiplier exceeds tax multiplier because some of tax cut will be saved

Front 55

the cost of borrowing

Back 55

interest rate

Front 56

slope of the interest rate is __________ the y is __ and the x is ______

Back 56

negative because it's the cost of borrowing, r, I

Front 57

an increase in the interest rate causes planned invetment to fall which in turn causes equilibrium income to fall means that

Back 57

IS curve slopes downward

Front 58

fiscal policy only refers to changes in

Back 58

G and T

Front 59

changes in G and T affect IS curve by _____

Back 59

shifting planned expenditure

Front 60

plots the relationship between the interest rate and the level of income that arises in the market for money balances

Back 60

LM curve

Front 61

the interest rate adjusts to balance the supply and demand for the economy's most liquid asset - money

Back 61

theory of liquidity preference

Front 62

what's the assumption of the theory of liquidity preference

Back 62

fixed supply of real money balances

Front 63

Back 63

real money balances supply is vertical because money supply is exogenous or doesnt depend on the interest rate

Front 64

demand for money curve is negative because

Back 64

a higher interest rate raises the cost of holding money and thus lowers quantity demanded

Front 65

money market disequilibrium what's actually happening

Back 65

interest rate altered because people adjust the portfolios of their assets

Front 66

individuals holding excess supply of money try to convert their cash into interest-bearing deposits and banks subsequently lower their interest rates so they dont have to pay as much

Back 66

interest rate is above equilibrium level

Front 67

people sell bonds and make withdrawals, banks have scarce funds and respond by increasing their interest rates

Back 67

r is below equilibrium or quantity of money demanded exceeds quantity supplied

Front 68

decrease in the money supply ________ the interest rate

Back 68

raises

Front 69

The quantity of real money balances demanded is ______________ related to the interest rate and ________________ related to income

Back 69

negatively, positively

Front 70

Back 70

LM loin from L(r,Y) and M/P

Front 71

why is the LM upward sloping

Back 71

higher income leads higher demand for real money balances leads to a higher interest rate

Front 72

an increase in the money supply lowers the interest rate which stimulates investment and thereby expands the demand for goods and services

Back 72

monetary transmission mechanism

Front 73

the fed can offset the recession caused by a tax hike if it

Back 73

expands the money supply at the expense of a large decrease in the interest rate

Front 74

SRAS equation

Back 74

Y=Ybar +a(p-ep)

Front 75

output deviates from its natural level when

Back 75

price level deviates from the expected price level

Front 76

slope of the aggregate supply curve

Back 76

1/a

Front 77

two reasons why aggregate supply slopes upward

Back 77

when prices are higher firms need to charge more to recoup costs, the imperfect information model

Front 78

all prices are free to adjust to balance supply and demand but short run and long run supply curves differ because of temporary misperceptions about prices

Back 78

imperfect information model

Front 79

when actual prices exceed expected prices, suppliers raise their output

Back 79

imperfect information model

Front 80

phillips curve

Back 80

pi = Epi - B(u-u^n) +v

Front 81

people form their expectations of inflation based on recently observed inflation

Back 81

adaptive expectations

Front 82

pi - pi(last year) - B (u-u^0)+v

Back 82

non accelerating inflation rate of unemployment NAIRU

Front 83

low employment pulls the inflation rate up; high aggregate demand is responsible --- high unemployment pulls the inflation rate down -- B

Back 83

demand-pull inflation

Front 84

v term in phillips curve. adverse supply shocks mean positive v

Back 84

cost-push inflation

Front 85

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

Back 85

sacrifice ratio

Front 86

reducing inflation by 1 percentage point requires sacrifice of ______ of cyclical unemployment

Back 86

2.5

Front 87

fluctuations in aggregate demand affect output and employment only in the short run

Back 87

natural rate hypothesis

Front 88

long-lasting influence of history on the natural rate of unemployment

Back 88

hysteresis

Front 89

time between a shock to the economy and the policy action responding to that shock; occurs because it takes time for policy makers to recognize that a shock has occurred

Back 89

inside lag

Front 90

time between a policy action and its influence on the economy because policies do not immediately affect anything

Back 90

outside lag

Front 91

which has the worse inside lag between fiscal and monetary policy

Back 91

fiscal

Front 92

income taxes, Unemployment insurance, welfare

Back 92

automatic stabilizers

Front 93

traditional methods of policy evaluation do not take into account the impact of policy on expectations

Back 93

lucas critique

Front 94

Lucas thoughts on disinflation and sacrifice ratio

Back 94

estimates of the sacrifice ratio are unreliable because they do not consider how policy affects expectations; reducing inflation can be less costly

Front 95

according to romer why hasn't keynesianism worked after 30s

Back 95

figment of the data; making "bad" modern data and good old data shows the disparity in data-gathering

Front 96

manipulation of the econoy for electoral gain

Back 96

political business cycle

Front 97

policymakers can sometimes better achieve their goals by having their discretion taken away from them because of

Back 97

time inconsistency of policy

Front 98

advocate rule where the Fed keeps money growing at a steady rate; doesn't allow adjustment for shocks

Back 98

monetarists

Front 99

fed announces planned path for nominal GDP and reduces or increase money growth to affect AD

Back 99

GDP targeting rule

Front 100

money supply adjustment that insulates economy from changes in velocity of money

Back 100

inflation targeting rule

Front 101

when inflation rises, the federal funds rate should _______, meaning smaller money supply

Back 101

rise

Front 102

responds to inflation and the output gap (as a measure of inflationary pressure)

Back 102

taylor rule

Front 103

increase in the money supply lowers interest rate, stimulating investment and expanding the demand for goods and services; how monetary expansion induces greater spending

Back 103

monetary transmission mechanism

Front 104

interest rate that banks charge one another for overnight loans

Back 104

federal funds rate

Front 105

hypothesis placing primary blame for the depression on an exogenous fall in spending on goods and services, thus a contractionary shift in the IS curve

Back 105

spending hypothesis

Front 106

places blame on the federal reserve for allowing the money supply to fall

Back 106

money hypothesis

Front 107

mechanism by which falling prices expand real money balances, making consumers spend more

Back 107

pigou effect

Front 108

unexpected falls in the price level enriches creditors and impoverishes debtors, affecting spending on goods and services because debtors probably have higher propensities to consume

Back 108

debt-deflation theory

Front 109

interest rates have fallen so low that monetary policy is no longer effective

Back 109

liquidity trap