Macro Final Flashcards
Structural deficit and cyclical deficit.
Actual Deficit
The difference between expenditures and receipts.
Nominal deficit.
The nominal deficit adjusted for inflation
Real deficit.
A view of fiscal policy that the government budget should always be balanced except in wartime.
Sound finance
Deficits do not affect the level of output because people increase savings to pay future taxes and to repay the deficit
Ricardian Equivalence Theorem.
Held that governments should make spending and taxing decisions on the basis of their effort on the economy, not on the basis of som moralistic principle that budgets should be balanced.
Functional finance
The offsetting of a change in government expenditures by a change in private expenditures in the opposite direction.
Crowding out
Changes in government spending and taxes that increase the cyclical fluctuations in the economy instead of reducing them.
Pro cyclical fiscal Policy
Those who are willing and able to work.
Labor force
u = U/L (100%)
Unemployment rate.
Unemployment leads to _
Deflation
Measures the labor force as a percentage of the total population.
Labor Force Participation rate
The number of people who are working as a percentage of people available to work.
Employment Population Rate
States that 1% point raise in the unemployment rate will be associated with a 2% full in output from its trend and vice versa.
Okun’s rule of thumb.
When the prices of assets rise more than their real value
Asset price inflation
A number that summarizes what happens to a weighted composite of a selection of goods over time.
Price index
An index of the price level of aggregate output relative to a base year.
GDP Deflator
Measures average change in the selling prices received by a domestic producer.
Producer price index
Measures the prices of a fixed basket of consumer goods, weighted according to each component’s share of an average consumer’s expenditures.
Consumer price index
W;hen inflation hits triple digits
Hyperinflation
Expectations they the economists’ models predict.
Rational expectations
Expectations based on the past.
Adaptive expectations.
Expectations that a trend will continue
Extrapolative expectations.
The connection between money and inflation
Quantity theory
MV=PQ
The equation of exchange. M=Quantity of money V=Velocity of money P=Price level Q=Real output
The number of times per year, on average, a dollar gets spend on goods and services.
Velocity of money
A downward sloping curve showing the relationship between inflation and unemployment when expectations of inflation are constant.
Short run Phillips curve
A combination of high and accelerating inflation and high unemployment
Stagflation
Is a vertical curve that the unemployment rate consistent with potential output
The long run Phillips curve
