Chapter 10, 11, 12 Flashcards
Okun’s Law
The negative relationship between unemployment and GDP
Leading Indicators
Variables that tend to fluctuate in advance of the overall economy
Aggregate Demand
The relationship between the quantity of output demanded and the aggregate price level
Aggregate Supply
The relationship between the quantity of goods and services supplied and the price level
Shocks
Exogenous events that cause the curves to shift
Demand Shocks
A shock that shifts the aggregate demand curve
Supply Shocks
A shock that shifts the aggregate supply curve
Stabilization Policy
To refer to policy actions aimed at reducing the severity of short run economic fluctuations
IS-LM Model
The leading interpretation of Keynes theory
The goal is to show what determines national income for a given price level
IS Curve
Stands for Investment and Savings
Represents what’s going on in the market for goods and services
LM Curve
Stands for Liquidity and Money
Represents what’s happening to the supply and demand for money
Keynesian Cross
Simplest interpretation of Keynes’s theory of how national income is determined and is a building block for the more complex and realistic IS-LM model
Government Purchases Multiplier
The ratio of change in Y over change in G
It tells us how much income rises in response to a $1 increase in government purchases
Tax Multiplier
The amount income changes in response to a $1 change in taxes
Theory of Liquidity Preference
The interest rate adjusts to balance the supply and demand for money
Monetary Transmission Mechanism
How a monetary expansion induces greater spending on goods and services
Pigou Effect
When falling prices expand income
Debt-Deflation Theory
Describes the effects of unexpected falls in the price level
Liquidity Trap
Aggregate demand, production, and employment may be trapped at low levels
Fisher Effect
The relationship between inflation and real and nominal interest rates
Real interest rate = nominal - inflation
Zero Lower Bound
Another name for liquidity trap
Forward Guidance
How banks communicate what their future monetary policy will be
Quantitative Easing
Unconventional monetary policy where a central bank purchases government securities in order to lower interest rates and increase money supply
