Chapter 17: Stabilizing the National Economy Flashcards
Unemployment rate
Percentage of the civilian labor force that is unemployed but actively looking for work
Full employment
Condition of the economy when the unemployment rate is lower than a certain percentage established by economists’ studies
Underground economy
Transactions by people who do not follow federal and state laws with respect to reporting earnings
Demand-pull inflation
Theory that prices rise as the result of excessive business and consumer demand; demand increases faster than total supply, resulting in shortages that lead to higher prices
Stagflation
Combination of inflation and stagnation (low economic activity)
Cost-push inflation
Theory that higher wages and production costs push prices up
Fiscal policy
Federal government’s use of taxation and spending policies to affect overall business activity
Circular flow of income and output
Economic model that pictures income as flowing continuously between businesses and consumers
Monetarism
Theory that deals with the relationship between the amount of money the Fed places in circulation and the level of activity in the economy
Monetarists
Supporters of the theory of monetarism, often associated with Milton Friedman
Monetary rule
Monetarists’ belief that the Fed should allow the money supply to grow at a smooth, consistent rate per year and not use monetary policy to stimulate or slow the economy
Inflation targeting
A possible central bank policy in which the head of the central bank is given a specified annual rate of inflation as a goal
Time lags
Periods between the time fiscal policy is enacted and the time it becomes effective
Stabilization policies
Attempts by the federal government to keep the economy healthy; includes monetary and fiscal policies
