unit 5 vocab Flashcards
cyclically adjusted budget balance
Difference between the overall balance and the automatic stabilizers
fiscal year
an annual accounting period for which an institution’s financial statements are prepared
public debt
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
debt-gdp ratio
the metric comparing a country’s public debt to its gross domestic product (GDP)
implicit liabilities
moral obligations or burdens that, although not legally binding, are likely to be borne by governments because of public expectations or political pressures
target federal funds rate
the rate at which commercial banks borrow and lend their excess reserves to each other overnight
expansionary monetary policy
when a central bank uses its tools to stimulate the economy
contractionary montary policy
a monetary measure to reduce government spending or the rate of monetary expansion by a central bank
taylor rule for monetary policy
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
inflation targeting
a central bank strategy of specifying an inflation rate as a goal and adjusting monetary policy to achieve that rate
monetary neutrality
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
classical model of the price level
the levels of output and employment are determined solely by supply factors
inflation tax
the difference between the nominal and real growth in income
cost-push inflation
when overall prices increase due to increases in the cost of wages and raw materials
demand-pull inflation
instances when demand for goods and services exceeds the available supply of those goods and services in the economy
short run phillips curve
explains the inverse relationship between inflation in an economy and the unemployment rate
non accelerating inflation rate of unemployment
the lowest unemployment rate that can be sustained without causing wages growth and inflation to rise
long run phillips curve
represents the long-run relationship between the price level and unemployment
debt deflation
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
zero bound
an expansionary monetary policy tool where a central bank lowers short-term interest rates to zero, if needed, to stimulate the economy
liquidity track
when expansionary monetary policy (increase in money supply) does not increase the interest rate, income and hence does not stimulate economic growth
macroeconomic policy activism
the use of monetary and fiscal policy to smooth out the business cycle
monetarism
money supply multiplied by its velocity is equal to nominal expenditures in the economy multiplied by price.
discretionary monetary policy
a macroeconomic tool used by a country’s central bank to manage its money supply and interest rates
monetary policy rule
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.
Quantity theory of money
a framework to understand price changes in relation to the supply of money in an economy
velocity of money
a measurement of the rate at which money is exchanged in an economy
natural rate hypothesis
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
political business cycle
A theory that attributes the business cycle to attempts by the incumbent administration to manipulate the economy to increase its chances of re-election
new classical macroeconomics
macroeconomics that builds its analysis entirely on a neoclassical framework
rational expectations
an economic theory that states that individuals make decisions based on the best available information in the market and learn from past trends
New Keynesian economics
a modern twist on the macroeconomic doctrine that evolved from classical Keynesian economics principles
real business cycle theory
the latest incarnation of the classical view of economic fluctuations
rule of 70
a calculation that determines how many years it takes for an investment to double in value based on a constant rate of return
labor productivity
a measure of economic performance that compares the amount of output with the amount of labor used to produce that output
physical capital
the human-created tangible assets or inputs that are used to support the production of goods and services
human capital
the stock of knowledge, skills and other personal characteristics embodied in people that helps them to be productive
technology
anything that helps us produce things faster, better or cheaper
Aggregate production function
the maximum output that can be produced given the quantities of the factors of production
Diminishing returns to physical capital
the concept that suggests that there is usually less output for every new capital input
growth accounting
a quantitative tool used to break down how specific factors contribute to economic growth
total factor productivity
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.
convergence hypothesis
the hypothesis that poorer economies’ per capita incomes will tend to grow at faster rates than richer economies
research and development (r&d)
represents the activities companies undertake to innovate and introduce new products and services or to improve their existing offerings
infrastructure
the basic physical systems of a business, region, or nation and often involves the production of public goods or production processes
sustainable
practices that support long-term economic growth without negatively impacting social, environmental, and cultural aspects of the community
depreciation
the decline in the economic value of an asset over time
