Ch 19 Flashcards
Monetarism
1) focuses on the money supply 2)Holds that markets are highly competitive 3)says that competitive market system gives the economy a high degree of macroeconomic
Velocity
The average number of times a year a dollar is spent on final goods and services
Equation of Exchange
MV = PQ :M, is the supply of money; V, is the velocity of money; P, is the price level; Q, the physical volume of all goods and services produced
Real-Business-Cycle Theory
Business fluctuations result from significant changes in technology and resource availability
Coordination Failures
A situation in which people do not reach a mutually beneficial outcome because they lack some way to jointly coordinate their actions; a possible cause of macroeconomic instability
Rational Expectations Theory
The idea that businesses, consumers, and workers expect changes in policies or circumstances to have certain effect on the economy and, in pursuing their own self-interest, take actions to make sure those changes affect them as little as possible
New Classical Economics
when the economy occasionally diverges from from its full-employment output, internal mechanisms within the economy will automatically move it back to that output
Price-Level Surprises
Unanticipated changed in the price level
Efficiency Wage
A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover
Insider-Outsider Theory
Outsiders may not be able to underbid existing wages because employers may view the nonwage cost of hiring them to be prohibitive
Monetary Rule
The rule suggested by monetarism. The rule says that the money supply should be expanded each year at the same annual rate as the potential rate of growth of the real gross domestic product
