unit 5 vocab

Question 1

cyclically adjusted budget balance

Answer 1

Difference between the overall balance and the automatic stabilizers

Question 2

fiscal year

Answer 2

an annual accounting period for which an institution’s financial statements are prepared

Question 3

public debt

Answer 3

the amounts owed by the different levels of government and used to finance public deficits resulting from a higher level of program spending to budgeted income

Question 4

debt-gdp ratio

Answer 4

the metric comparing a country’s public debt to its gross domestic product (GDP)

Question 5

implicit liabilities

Answer 5

moral obligations or burdens that, although not legally binding, are likely to be borne by governments because of public expectations or political pressures

Question 6

target federal funds rate

Answer 6

the rate at which commercial banks borrow and lend their excess reserves to each other overnight

Question 7

expansionary monetary policy

Answer 7

when a central bank uses its tools to stimulate the economy

Question 8

contractionary montary policy

Answer 8

a monetary measure to reduce government spending or the rate of monetary expansion by a central bank

Question 9

taylor rule for monetary policy

Answer 9

suggests that the Federal Reserve should raise rates when inflation is above target or when gross domestic product (GDP) growth is too high and above potential

Question 10

inflation targeting

Answer 10

a central bank strategy of specifying an inflation rate as a goal and adjusting monetary policy to achieve that rate

Question 11

monetary neutrality

Answer 11

the idea that a change in the money supply does not have a real impact on the economy in the long run, other than changing the aggregate price level in proportion to the change in the money supply

Question 12

classical model of the price level

Answer 12

the levels of output and employment are determined solely by supply factors

Question 13

inflation tax

Answer 13

the difference between the nominal and real growth in income

Question 14

cost-push inflation

Answer 14

when overall prices increase due to increases in the cost of wages and raw materials

Question 15

demand-pull inflation

Answer 15

instances when demand for goods and services exceeds the available supply of those goods and services in the economy

Question 16

short run phillips curve

Answer 16

explains the inverse relationship between inflation in an economy and the unemployment rate

Question 17

non accelerating inflation rate of unemployment

Answer 17

the lowest unemployment rate that can be sustained without causing wages growth and inflation to rise

Question 18

long run phillips curve

Answer 18

represents the long-run relationship between the price level and unemployment

Question 19

debt deflation

Answer 19

an economic theory suggesting that a general downturn in the economy can occur when prices fall and the value of currency rises, causing a climb in the real value of debt

Question 20

zero bound

Answer 20

an expansionary monetary policy tool where a central bank lowers short-term interest rates to zero, if needed, to stimulate the economy

Question 21

liquidity track

Answer 21

when expansionary monetary policy (increase in money supply) does not increase the interest rate, income and hence does not stimulate economic growth

Question 22

macroeconomic policy activism

Answer 22

the use of monetary and fiscal policy to smooth out the business cycle

Question 23

monetarism

Answer 23

money supply multiplied by its velocity is equal to nominal expenditures in the economy multiplied by price.

Question 24

discretionary monetary policy

Answer 24

a macroeconomic tool used by a country’s central bank to manage its money supply and interest rates

Question 25

monetary policy rule

Answer 25

a description-expressed algebraically, numerically, graphically-of how the instruments of policy, such as the monetary base or the federal funds rate, change in response to economic variables.

Question 26

Quantity theory of money

Answer 26

a framework to understand price changes in relation to the supply of money in an economy

Question 27

velocity of money

Answer 27

a measurement of the rate at which money is exchanged in an economy

Question 28

natural rate hypothesis

Answer 28

an economic theory that states that the unemployment rate in an economy will eventually return to its natural rate, regardless of the level of economic activity

Question 29

political business cycle

Answer 29

A theory that attributes the business cycle to attempts by the incumbent administration to manipulate the economy to increase its chances of re-election

Question 30

new classical macroeconomics

Answer 30

macroeconomics that builds its analysis entirely on a neoclassical framework

Question 31

rational expectations

Answer 31

an economic theory that states that individuals make decisions based on the best available information in the market and learn from past trends

Question 32

New Keynesian economics

Answer 32

a modern twist on the macroeconomic doctrine that evolved from classical Keynesian economics principles

Question 33

real business cycle theory

Answer 33

the latest incarnation of the classical view of economic fluctuations

Question 34

rule of 70

Answer 34

a calculation that determines how many years it takes for an investment to double in value based on a constant rate of return

Question 35

labor productivity

Answer 35

a measure of economic performance that compares the amount of output with the amount of labor used to produce that output

Question 36

physical capital

Answer 36

the human-created tangible assets or inputs that are used to support the production of goods and services

Question 37

human capital

Answer 37

the stock of knowledge, skills and other personal characteristics embodied in people that helps them to be productive

Question 38

technology

Answer 38

anything that helps us produce things faster, better or cheaper

Question 39

Aggregate production function

Answer 39

the maximum output that can be produced given the quantities of the factors of production

Question 40

Diminishing returns to physical capital

Answer 40

the concept that suggests that there is usually less output for every new capital input

Question 41

growth accounting

Answer 41

a quantitative tool used to break down how specific factors contribute to economic growth

Question 42

total factor productivity

Answer 42

measures residual growth in total output of a firm, industry or national economy that cannot be explained by the accumulation of traditional inputs such as labor and capital.

Question 43

convergence hypothesis

Answer 43

the hypothesis that poorer economies’ per capita incomes will tend to grow at faster rates than richer economies

Question 44

research and development (r&d)

Answer 44

represents the activities companies undertake to innovate and introduce new products and services or to improve their existing offerings

Question 45

infrastructure

Answer 45

the basic physical systems of a business, region, or nation and often involves the production of public goods or production processes

Question 46

sustainable

Answer 46

practices that support long-term economic growth without negatively impacting social, environmental, and cultural aspects of the community

Question 47

depreciation

Answer 47

the decline in the economic value of an asset over time