Begrepp till A-delen Flashcards
Adaptive expectations
Expectations that are purely backward-looking and do not respond to news about the future. Under adaptive expectations, the expected rate of inflation over the coming year is given by the inflation rate that prevailed over the previous year. (AS-curve)
Automatic stabilizer
A policy stimulus that engages automatically when the economy goes into a recession, helping to mitigate the downturn. Unemployment insurance and welfare programs are examples.
Balanced growth path
A situation in a growth model in which all economic variables grow at constant rates forever.
Balassa-Samuelson effect
Productivity growth tends to be more rapid among traded goods than nontraded goods, leading the relative price of nontraded goods to rise. In a developing country that is growing rapidly, this effect often manifests as an appreciation of the real exchange rate.
Behavioral economics
A relatively recent field of economic research that blends insights from psychology, neuroscience and economics in an effort to create a better understanding of how individuals make economic decisions. Behavioral economics emphasizes departures from perfectly rational, forward-looking behavior.
The classic dichotomy
The notion that changes in nominal variables like the money supply or the nominal interest rate have only nominal effects on the economy; in particular that they do not affect real variables; such as the amount of real GDP. The classical dichotomy supposes that the nominal and real sides of the economy are largely separate. This is not quite accurate, however; as real variables can affect nominal variables - think about the quantity theory of money.
Constrained discretion
A compromise in the “rules versus discretion” debate where policymakers use rules as guidelines to policy, only departing from them in exceptional circumstances.
Cost-push inflation
Inflation created by exogenous increases in the cost of production in any economy; such as an oil price increase; inflation that comes from shifts in the AS curve.
Crowding out
Actions by the government may “crowd out” actions by the private sector. The typical example in macro is when government borrowing to finance a budget deficit uses up some of the economy’s saving and crowds out investments.
Demand-pull inflation
Inflation created by a stimulus to demand conditions in the economy that leads firms to increase their prices; inflation that comes from shifts in the AD-curve.
Euler equation
Characterizes the path of consumption when individuals are maximizing their utility. It says that the consumer must be indifferent between consuming an extra bit more today, on one hand, and saving that bit and consuming in the next period on the other hand.
Financial frictions
An extra amount of money paid by a borrower in credit markets above and beyond what a lender would require to make loan in normal times. A tax on borrowing is one example. During a financial crisis, such frictions appear to be large and significant.
Frictional unemployment
The part of unemployment that is due to people changing jobs for reasons unrelated to the business cycle, such as personal reasons or geographic preferences.
Lucas critique
In 1976, Robert Lucas argued that changes in policies will typically lead to changes in expectations, and if models do not take these changes in expectations into account, they will make invalid predictions.
Okun’s law
It allows us to think about economic fluctuations in terms of either output or unemployment. It says that a 2 percentage point decline in short-run output is associated with a 1 percentage point rise in the unemployment rate.
Output-gap up –> employment up
Output-gap down –> employment down
Natural rate of unemployment
A medium to long-run measure of the unemployment rate that would prevail if the economy were producing at its potential level. There may be nothing natural about this rate. It may include unemployment that results from institutional and structural features of the labor market, such as hiring and firing costs. It includes both frictional and structural unemployment.
Multiplier effects
The important concept in macroeconomics that the long-run effect of a change can be larger than the initial shock. For example, an increase in total factor productivity in the Solow model by 1 percent raises output by more than 1 percent in the long run. This is because higher productivity has a multiplier effect: it raises output directly, but this indirectly increases investment, which increases capital and therefore leads to even higher output. In extensions of our short-run model, a similar amplification of shocks can occur. For example, an aggregate demand shock may increase output directly, but then the higher income may stimulate consumption, which raises output indirectly.
Paasche index
A method of comparing real GDP at two points in time using prices from a later time period.
Laspeyres index
A method of comparing real GDP at two points in time using prices from an earlier time period.
Permanent income-hypothesis
A theory of consumption proposed by Milton Friedman, which states that consumers base their consumption on some average measure of income rather than solely on current income. A strong version of the permanent-income hypothesis says that consumers set consumption equal to the “flow value” of the present discounted value of their lifetime income.
Precautionary savings
Additional saving to guard against the possibility of a large drop in income or wealth.
Principle of transition dynamics
This key property of the long-run model says that an economy that starts below its steady state (or its balanced growth path) will grow rapidly until it reaches its steady state. Growth slows down as the gap between the economy’s position and the steady state shrinks.
Quantitative easing
Purchases of financial assets such as mortgage-backed securities or long-term treasury bonds by the central bank in an attempt to directly reduce interest rates in these and other markets.
Random walk view of consumption
An implication of the neoclassical consumption model: current information, including expectations of future income. So the change in consumption should be un predictable.
Rule of 70
70/growth in % = how many years passes by before it is doubled.
sticky inflation assumption
The assumption that when firms set prices, for various reasons the prices respond slowly to changes in monetary policy. This leads the rate of inflation (the change in prices) to adjust gradually over time.
zero lower bound
Refers to the fact that nominal interest rates cannot fall below zero, except in unusual circumstances.
Fisher-effekten
Kopplingen mellan ökning penningmängd –> inflation (kvantitets) och nominalräntehöjning enligt Fisher
Positiv korrelation mellan nominella räntan och inflation.
