Final New Content

Question 1

Aggregate Expenditure

Answer 1

sum of consumption in an economy

Question 2

output gap

Answer 2

(actual output - potential output) / (potential output)

Question 3

IS Curve

Answer 3

x axis: AE
y axis: interest rate
downward sloping curve

Question 4

MP curve

Answer 4

illustrates the real interest rate

Question 5

IS shifts

Answer 5

fiscal policy to influence consumption, shift by change in G x multiplier

Question 6

financial shocks

Answer 6

shift the MP curve, changes in monetary policy, risk premium shift due to financial markets

Question 7

inflation expectations

Answer 7

the rate at which prices are anticipated to rise each year

Question 8

demand pull inflation

Answer 8

inflation resulting from excess demand

Question 9

cost push inflation

Answer 9

inflation that results from unexpected rise in production costs

Question 10

adaptive expectations

Answer 10

expect recent inflation levels to continue

Question 11

anchored expectations

Answer 11

believe the FED 2% rate

Question 12

rational expectations

Answer 12

using all available information to forecast inflation rate

Question 13

sticky expectations

Answer 13

stick with previous predictions

Question 14

Philips Curve

Answer 14

x axis: output gap
y axis: unexpected inflation
upward sloping curve

Question 15

labor market Philips Curve

Answer 15

decrease in unemployment leads to an increase in unexpected inflation

Question 16

supply shocks

Answer 16

shift the Philip’s Curve, rising input prices

Question 17

classical dichotomy

Answer 17

nominal change won’t have any effect on real variables in the long run

Question 18

FED model

Answer 18

framework used to link interest rates, output gap, and inflation

Question 19

stagflation

Answer 19

falling output combined with high inflation

Question 20

Fed Rule of Thumb

Answer 20

federal funds rate - inflation = (neutral real interest rate) + 1/2(inflation - 2%) + output gap

Question 21

reserves

Answer 21

the cash that banks need to keep on hand to make payments

Question 22

open market trading desk

Answer 22

NY Fed trading desk where the Fed buys/sells government bonds

Question 23

overnight reverse repurchase agreements

Answer 23

Desk sells a gov bond to a financial institution with an agreement to buy back the next day at a higher price

Question 24

forward guidance

Answer 24

providing info on future course of monetary policy to influence market expectations

Question 25

quantitative easing

Answer 25

purchasing large quantities of longer-term gov bonds to lower long-term interest rates

Question 26

lender of last resort

Answer 26

Fed’s role as a lender to financial institutions when they can’t get other loans

Question 27

social insurance

Answer 27

gov provided insurance against bad outcomes such as unemployment, disability, or outliving savings

Question 28

mandatory spending

Answer 28

spending on programs that doesn’t get determined annually, set in law

Question 29

discretionary spending

Answer 29

spending that congress appropriates annually

Question 30

tax expenditures

Answer 30

special exemptions, deductions, or credits that lower tax obligation, to encourage engagement in certain kinds of activities

Question 31

refundable tax credit

Answer 31

credit for which receiving the credit doesn’t depend on owing income taxes

Question 32

expansionary policy

Answer 32

higher gov spending to increase AE in response to output below potential

Question 33

contractionary policy

Answer 33

decrease AE in response to output above potential

Question 34

transfer payments

Answer 34

indirect spending, spending through households

Question 35

discretionary policy

Answer 35

temporary changes to boost/slow the economy

Question 36

automatic stabilizer

Answer 36

spending programs that adjust as the economy expands and contracts, without deliberate action

Question 37

gross gov debt

Answer 37

total accumulated amount of money the gov owes

Question 38

net gov debt

Answer 38

debt the gov owes to individuals, businesses, and abroad

Question 39

unfunded liability

Answer 39

a commitment to incur expenses in the future without a plan to pay for those expenses