Term
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Definition
| asserted that monetary policy affected only the aggregate price level, not aggregate output. asserted that the short run was unimportant. prices are flexible, making the aggregate supply curve vertical even in the short run. |
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Term
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Definition
| The General Theory of Employment, Interest, and Money. |
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Term
| macroeconomic policy activism |
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Definition
| use of monetary and fiscal policy to smooth out the business cycle |
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Term
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Definition
asserted that GDP will grow steadily if the money supply grows steadily.
It called for a shift from monetary policy rule to that of a discretionary monetary policy.
It argued that GDP would grow steadily if the money supply grew steadily. eventually rejected by many macroeconomists |
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Term
| discretionary monetary policy |
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Definition
| When the central bank changes interest rates or the money supply based on its assessment of the state of the economy |
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Term
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Definition
| formula that determines the central bank’s actions. |
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Term
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Definition
| the ratio of nominal GDP to the money supply.M × V = P × Y |
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Term
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Definition
| inflation is eventually embedded into expectations, to avoid accelerating inflation over time the unemployment rate must be high enough that the actual inflation rate equals the expected inflation rate. |
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Term
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Definition
| when politicians use macroeconomic policy to serve political ends. |
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Term
| The New classical macroeconomics |
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Definition
| an approach to the business cycle.returns to the classical view that shifts in the aggregate demand curve affect only the aggregate price level, not the aggregate output. |
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Term
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Definition
| view that individuals and firms make decisions optimally, using all available information. |
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Term
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Definition
| market imperfections can lead to price stickiness for the economy as a whole. |
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Term
| Real business cycle theory |
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Definition
| fluctuations in the rate of growth of total factor productivity cause the business cycle. |
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Term
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Definition
| was the belief that reducing tax rates, and so increasing the incentives to work and invest, would have a powerful positive effect on the growth rate of potential output. |
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Term
| Total Factor Productivity and the Business Cycle |
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Definition
| argues that fluctuations in the rate of growth of total factor productivity are the principal cause of business cycles |
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Term
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Definition
| arises from a trade-off between the opportunity cost of holding money and the liquidity that money provides. |
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Term
| short-term interest rates |
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Definition
| the interest rates on financial assets that mature within six months or less. |
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Term
| long-term interest rates. |
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Definition
| interest rates on financial assets that mature a number of years in the future. |
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Term
| the liquidity preference model of the interest rate |
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Definition
| the interest rate is determined in the money market by the money demand curve and the money supply curve. |
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Term
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Definition
| shows how the nominal quantity of money supplied varies with the interest rate. |
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Term
| Expansionary monetary policy |
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Definition
| reduces the interest rate by increasing the money supply. This increases investment spending and consumer spending, which in turn increases aggregate demand and real GDP in the short run. |
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Term
| Contractionary monetary policy |
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Definition
| raises the interest rate by reducing the money supply. This reduces investment spending and consumer spending, which in turn reduces aggregate demand and real GDP in the short run. |
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Term
| Taylor rule for monetary policy |
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Definition
| the target interest rate rises when there is inflation, or a positive output gap, or both; the target interest rate falls when inflation is low or negative, or when the output gap is negative, or both. |
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Term
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Definition
| which is a forward-looking policy rule, whereas the Taylor rule is a backward-looking policy rule |
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Term
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Definition
| changes in the money supply have no real effect on the economy in the long run. |
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Term
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Definition
| any asset that can easily be used to purchase goods and services |
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Term
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Definition
| part of the money supply. is cash held by the public. |
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Term
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Definition
| part of the money supply. bank accounts on which people can write checks. |
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Term
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Definition
| the total value of financial assets in the economy that are considered money. |
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Term
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Definition
| an asset that individuals acquire for the purpose of trading rather than for their own consumption. |
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Term
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Definition
| means of holding purchasing power over time. |
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Term
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Definition
| measure used to set prices and make economic calculations. |
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Term
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Definition
| a good used as a medium of exchange that has other uses. |
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Term
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Definition
| a medium of exchange with no intrinsic value whose ultimate value is guaranteed by a promise that it can be converted into valuable goods. |
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Term
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Definition
| medium of exchange whose value derives entirely from its official status as a means of payment. |
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Term
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Definition
| overall measure of the money supply. |
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Term
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Definition
| are financial assets that can’t be directly used as a medium of exchange but can readily be converted into cash or checkable bank deposits. |
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Term
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Definition
| uses liquid assets in the form of bank deposits to finance the illiquid investments of borrowers. |
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Term
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Definition
| tool for analyzing a business’s financial position by showing, in a single table, the business’s assets (on the left) and liabilities (on the right). |
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Term
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Definition
| the currency banks hold in their vaults plus their deposits at the Federal Reserve. |
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Term
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Definition
| the fraction of bank deposits that a bank holds as reserves. |
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Term
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Definition
| phenomenon in which many of a bank’s depositors try to withdraw their funds because of fears of a bank failure. |
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Term
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Definition
| guarantees that a bank’s depositors will be paid even if the bank can’t come up with the funds, up to a maximum amount per account. The FDIC currently guarantees the first $250,000 of each account. |
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Term
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Definition
| regulators require that the owners of banks hold substantially more assets than the value of bank deposits. In practice, banks’ capital is equal to 7% or more of their assets. |
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Term
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Definition
| rules set by the Federal Reserve that determine the minimum reserve ratio for a bank. For example, in the United States, the minimum reserve ratio for checkable bank deposits is 10%. |
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Term
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Definition
| arrangement in which the Federal Reserve stands ready to lend money to banks in trouble. |
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Term
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Definition
| bank reserves over and above the bank’s required reserves. |
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Term
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Definition
| sum of currency in circulation and bank reserves. |
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Term
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Definition
| the ratio of the money supply to the monetary base. |
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Term
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Definition
| an institution that oversees and regulates the banking system and controls the monetary base. |
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Term
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Definition
| central bank—an institution that oversees and regulates the banking system, and controls the monetary base. |
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Term
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Definition
| allows banks that fall short of the reserve requirement to borrow funds from banks with excess reserves. |
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Term
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Definition
| the interest rate determined in the federal funds market. |
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Term
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Definition
| the rate of interest the Fed charges on loans to banks. |
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Term
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Definition
| the Fed are the principal tool of monetary policy: the Fed can increase or reduce the monetary base by buying government debt from banks or selling government debt to banks. |
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Term
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Definition
| By 1933, banks had been separated into two categories:(covered by deposit insurance) |
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Term
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Definition
| By 1933, banks had been separated into two categories: (not covered). |
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Term
| savings and loan (thrift) |
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Definition
| crisis of the 1980s arose because insufficiently regulated S&Ls engaged in overly risky speculation and incurred huge losses. |
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Term
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Definition
| During the mid-1990s, the hedge fund LTCM used huge amounts of_______to speculate in global financial markets, incurred massive losses, and collapsed. |
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Term
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Definition
| LTCM was so large that, in selling assets to cover its losses, it caused __________________ for firms around the world, leading to the prospect of a vicious cycle of deleveraging. As a result, credit markets around the world froze. |
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Term
| vicious cycle of deleveraging. |
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Definition
| LTCM was so large that, in selling assets to cover its losses, it caused balance sheet effects for firms around the world, leading to the prospect of a __________________. As a result, credit markets around the world froze. |
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Term
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Definition
| ___________ during the U.S. housing bubble of the mid-2000s spread through the financial system via securitization. |
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Term
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Definition
| Subprime lending during the U.S. housing bubble of the mid-2000s spread through the financial system via ______________ |
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Term
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Definition
| programs are government programs intended to protect families against economic hardship |
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Term
| Expansionary fiscal policy |
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Definition
| shifts the aggregate demand curve rightwardmake a budget surplus smaller or a budget deficit bigger. |
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Term
| Contractionary fiscal policy |
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Definition
| shifts the aggregate demand curve leftward.smaller government purchases of goods and services, smaller government transfers, or higher taxes—increase the budget balance for that year, making a budget surplus bigger or a budget deficit smaller. |
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Term
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Definition
| are taxes that don’t depend on the taxpayer’s income. |
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Term
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Definition
| Rules governing taxes and some transfers act as ___________, reducing the size of the multiplier and automatically reducing the size of fluctuations in the business cycle. |
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Term
| cyclically adjusted budget balance |
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Definition
| estimate of the budget balance if the economy were at potential output |
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Term
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Definition
| October 1 to September 30 and is labeled according to the calendar year in which it ends. |
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Term
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Definition
| Persistent budget deficits have long-run consequences because they lead to an increase in _______ |
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Term
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Definition
| economic and financial turmoil |
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Term
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Definition
| A widely used measure of fiscal health number can remain stable or fall even in the face of moderate budget deficits if GDP rises over time. |
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Term
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Definition
| are spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics. |
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Term
| discretionary fiscal policy |
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Definition
| arises from deliberate actions by policy makers rather than from the business cycle. |
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Term
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Definition
| shows the relationship between the aggregate price level and the quantity of aggregate output demanded. |
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Term
| Wealth effect of a change in the aggregate price level |
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Definition
| level—a higher aggregate price level reduces the purchasing power of households’ wealth and reduces consumer spending |
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Term
| Interest rate effect of a change in the aggregate price level |
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Definition
| a higher aggregate price level reduces the purchasing power of households’ and firms’ money holdings, leading to a rise in interest rates and a fall in investment spending and consumer spending. |
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Term
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Definition
| shows the relationship between the aggregate price level and the quantity of aggregate output supplied. |
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Term
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Definition
| the dollar amount of the wage paid. |
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Term
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Definition
| nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages. |
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Term
| Short-run aggregate supply curve |
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Definition
| is upward sloping because nominal wages are sticky in the short run |
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Term
| Long - run aggregate supply curve |
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Definition
| shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible. |
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Term
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Definition
| growth is determined by the factors we analyzed in the chapter on long-run economic growth. |
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Term
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Definition
| uses the aggregate supply curve and the aggregate demand curve together to analyze economic fluctuations. |
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Term
| Short-run macroeconomic equilibrium |
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Definition
| when the quantity of aggregate output supplied is equal to the quantity demanded. |
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Term
| Short-run equilibrium aggregate price level |
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Definition
| he aggregate price level in the short-run macroeconomic equilibrium. |
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Term
| Short-run equilibrium aggregate output |
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Definition
| the quantity of aggregate output produced in the short-run macroeconomic equilibrium. |
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Term
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Definition
| the aggregate price level and aggregate output to move in the same direction as the economy moves along the short-run aggregate supply curve |
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Term
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Definition
| causes the aggrgrate price level to move in opposite directions as the economy moves along the aggregate demand curve |
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Term
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Definition
| inflation and falling aggregate output—which is caused by a negative supply shock. |
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Term
| Long-run macroeconomic equilibrium |
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Definition
| the point of short-run macroeconomic equilibrium is on the long-run aggregate supply curve. |
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Term
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Definition
| when aggregate output is below potential output. |
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Term
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Definition
| when aggregate output is above potential output. |
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Term
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Definition
| the percentage difference between actual aggregate output and potential output. |
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Term
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Definition
| The economy is ___________ when shocks to aggregate demand affect aggregate output in the short run, but not the long run. |
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Term
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Definition
| using fiscal or monetary policy to offset demand shocks. |
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