Fin 4319-Record A3 Flashcards
What does rising inflation cause?
High employment
What does low inflation cause?
Low employment
What is stagflation?
In 1970’s rising unemployment, rising rate of inflation
What are the goals of the Federal Reserve bank?
- Full employment
2. Low inflation
What happened in the late 1990’s?
high full employment, and low rate of inflation.
What is keynesian economics?
Subsequently, the term “Keynesian economics” was used to refer to the concept that optimal economic performance could be achieved – and economic slumps prevented – by influencing aggregate demand through activist stabilization and economic intervention policies by the government.
Who are they talking about when they ‘the fed’
Federal Reserver also known as Central Bank
What is the velocity of money?
How many times money is exchanged during the year
what are the tools of fed?
- change the discount rate
- reserve requirement
- open market operations
according to monetarist how is inflation created?
the growth of money supply
what is milton friedman view?
he’s a monetarist
what is the long run neutrality of money
in the long run can not influence economic activity
how does short run “illusion of money”
friedman effect, it seems like you have a lot more money in short run, but long run we just have inflation
how long does the illusion of money last?
2-3 years
what are monetary dove?
easy money, want everyone working and don’t care about inflation
what is a monetary hawk?
low inflation, price stability, don’t care if people are out of work
what are rational expectations?
they see what fed is doing in short and long run, nominal interest rates would jump, inflation would increase -> superneutrality of money.. Fed would have no power
who is the paul volcker
federal reserve chairman in 80’s who lowered inflation but stopping the money supply
what is spot rate of interest?
it’s the current rate of interest (right now.. this minute)
what is supraneutrality
if fed increase money supply, the
how do you find inflation expectations?
look spread between treasuries and tips (treasury inflation protected security)
what is the fisher model?
market’s expectation is based on past inflation rates
forecast inflation on a model on past and put more weight on recent quarters, so if inflation has been low and people expect it to continue to be low
if inflation is low and is picking up, it
naive approach, in real world bring in other considerations.
what does economic theory say about inflation
inflation is when economy is growing too fast, (overheated), growing to slow is deflation. Look at past utilization and
what is capacity utilization
to what extent the factories operating at full out put.
what determines inflation expectations?
fisher model
