Quiz 5 Flashcards
Exchange Rate
The price of one currency in terms of another currency, determined in the forex market
Aggregate Demand (AD)
A schedule or curve that shows the total quantity demand for all goods and services of a nation at various price levels at a given period of time
Floating Exchange Rate System
When a currency’s exchange rate is determined by the free interaction of supply and demand in international forex markets
GDP
The total market value of all final goods and services produced during a given time period within a country’s borders. Equal to the total income of the nations households or the total expenditures on the nations output.
GDP Deflator
The price index for all final goods and services used to adjust the nominal GDP into real GDP
Long Run Aggregate Supply
The level of output to which an economy will always return in the long run. The LRAS curve intersects the horizontal axis at the full employment or potential level of output.
M3
The broadest component of the money supply. Equal to M2 plus large time deposits.
Monetarism
The macroeconomic view that the main cause of changes in aggregate output and the price level are fluctuations in the money supply.
Money Market
The market where the supply of money is set by the central bank; includes the downward-sloping money-demand curve and a vertical money supply curve. The price of the money is the nominal interest rate.
Multiplier Effect
The increase in total spending in an economy resulting from an initial injection of new spending. The size of the multiplier effect depends upon the spending multiplier.
Phillips Curve
A curve vertical at the natural rate of unemployment showing that in the long run there is no trade off between the price level and the level of unemployment in an economy.
Rational Expectations Theory
The hypothesis that business firms and households expect monetary and fiscal policies to have certain effects on the economy and take, in pursuit of their own self-interests, actions which make these policies ineffective at changing real output
Required Reserves
The proportion of a banks total deposits it is required to keep in reserve with the central bank. Determined by the required reserve ratio.
Stagflation
A macroeconomic situation in which both inflation and unemployment increase. Caused by negative supply shock.
Managed or Fixed Exchange Rate System
When a government or central bank takes action to manage or fix the value of its currency relative to another currency on the forex market.
