ECON 200 Handout 9 Key Terms Flashcards
Recession
When short-run equilibrium output (Y*) is less than full-employment equilibrium output (Y bar)
Cyclical Unemployment
The difference when unemployment (u) is greater than the natural rate of unemployment (u bar)
Slack Labor
The unhappily unemployed people searching for jobs that would work for wages less than the wages employers are currently paying
Real Balances
Money Supply/Price Level
Liquidity
The level of real balances in an economy
Liquidity Effect
The change in real balances from the change in P
Wealth Effect
When P falls and the purchasing power of existing money balances increases causing people to feel wealthier and, therefore, to consume more
Economic Boom
When Y* exceeds Y bar
Activist Policy (Countercyclical Policy)
Expansionary fiscal or monetary policies to return the economy to Y bar more rapidly than accomplished by waiting for prices to adjust
Laissez-Faire Policy
Policy where the government consciously does nothing (as opposed to actively trying to influence the economy
Real Business Cycle (RBC) Theory
The belief that the observed economy is continuously at full-employment-as if organized by a Walrusian auctioneer-and there is no need for activist policy
Policy Lags
The length of time it takes for activist policies to have their full effect
Recognition Lag
The time it takes to recognize that a recession has begun
Decision Lag
The time it takes to decide the appropriate policy
Action Lag
The time it takes to implement the policy
Automatic Stabilizers
Forms of countercyclical policy that are preprogrammed to be conducted immediately upon the advent of conditions associated with recessions or booms
Federal Open Market Committee (FOMC)
The arm of the Fed that decides monetary policy; Composed of 19 members
Board of Governors
Posses a majority of the votes on any monetary policy proposal
Federal Reserve System
12 regional banks of the United States
Business Cycle
The observed fluctuations in Y that Keynesian and RBC theorists have two very different interpretations of
Monetary Union
Where multiple countries share a single currency, and they set up a central bank to oversee their currency
