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| 5444325880 | Contractionary monetary policy | REDUCES the money supply. The Fed may decide to take a contractionary approach by INCREASING the interest rates. Indicates a shift in AD to the left to full employment, and reduce inflationary pressures |  | 0 |
| 5444325881 | Cost Push Inflation | increases in the price level (inflation)resulting from an increase in resource costs (for example, raw material prices) and hence in per unit production costs; inflation caused by reductions in aggregate supply |  | 1 |
| 5444325882 | Crowding out effect | the offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending |  | 2 |
| 5444325883 | Debt Deflation | the reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation |  | 3 |
| 5444325884 | Debt GDP Ratio | is the ratio between a country's government debt and its gross domestic product (GDP) |  | 4 |
| 5444325885 | Demand pull inflation | is asserted to arise when aggregate demand in an economy outpaces aggregate supply. ex) Economists will often say that demand-pull inflation is a result of too many dollars chasing too few goods. | 5 | |
| 5444325886 | Discretionary Monetary Policy | deliberate changed in any of the Fed tools to create counter cyclical pressures to encourage expansion or dampen inflation ex) the use of changes in the interest rate or the money supply to stabilize the economy | 6 | |
| 5444325887 | Disinflation vs. Deflation | Disinflation is an inflation rate that is decreasing but still >0. Deflation is a negative inflation rate ex) A slowing in the rate of price inflation | 7 | |
| 5444325888 | Equation of Exchange | MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of output of goods and services produced in an economy. ex) the equation says that nominal GDP (P * Q) is equal to the quantity of money (M) multiplied by the number of times each dollar is spent in a year (V) | 8 | |
| 5444325889 | Expansionary Monetary Policy | A shift in monetary policy designed to stimulate aggregate demand. Bond purchases by the Fed, the creation of additional bank reserves, and an increase in the growth rate of the money supply generally indicate a shift to a more expansionary monetary policy. |  | 9 |
| 5444325890 | Fiscal Policy Lags | is the time between the beginning of recession or inflation and the certain awareness that is actually happening. |  | 10 |
| 5444325891 | Inflation Targeting | When a monetary authority chooses its interest rate values with the aim of keeping the inflation rate within some specified band over some specified horizon. ex) occurs when the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target | 11 | |
| 5444325892 | Inflation Tax | printing money causes inflation, which is like a tax on everyone who holds money |  | 12 |
| 5444325893 | Liquidity Trap | a situation in which the nominal interest rate has hit its lower bond of zero as a result, expansionary monetary policy can no longer be used |  | 13 |
| 5444325894 | Long Run Phillips Curve | The long-run Phillips curve is a vertical line at the natural rate of unemployment, so inflation and unemployment are unrelated in the long run. |  | 14 |
| 5444325895 | Monetarism | An economic philosophy that assumes inflation occurs when there is too much money chasing too few goods. Suggests that the proper thing for government to do is to have a steady, predictable increase in the money supply at a rate about equal to the growth in the economy's productivity. ex) A theory that government should control the money supply to encourage economic growth and restrain inflation. | 15 | |
| 5444325896 | Monetary Rule | The rule suggested by monetarism. As a traditionally formulated, the rule says that the money supply should be expanded each year at the same annual rate as the potential rate of growth of real gross domestic product; the supply of money should be increased steadily between 3 and 5 percent per year ex) belief that the FED should not change monetary policy | 16 | |
| 5444325897 | Money Neutrality | the idea that changes in the money supply do not have real effects (doesn't change GDP) on the economy in the long run, it only affects the price level |  | 17 |
| 5444325898 | Natural Rate Hypothesis | the natural rate of unemployment is largely independent of the stimulus provided by monetary or fiscal policy |  | 18 |
| 5444325899 | New Classical Macroeconomics | the macroeconomic theories of Robert Lucas and others, particularly the idea that workers and firms have rational expectations |  | 19 |
| 5444325900 | New Keynesian Economics | A body of macroeconomic thought that stresses the stickiness of prices and the need for activist stabilization policies through the manipulation of aggregate demand to keep the economy operating close to its potential output. It incorporates monetarist ideas about the importance of monetary policy and new classical ideas about the importance of aggregate supply, both in the long run and in the short run. ex) says that market imperfections can lead to price stickiness for the economy as a whole | 20 | |
| 5444325901 | Nonaccelerating Inflation Rate of Employment | the full employment rate of unemployment; when employment falls below this rate, inflation accelerates ex) the vertical line in a LRPC | 21 | |
| 5444325902 | Non discretionary Fiscal Policy | that set of policies that are built into the system to stabilize the economy; "built-in stabilizers" ex) progressive income tax and the welfare system | 22 | |
| 5444325903 | Phillips curve | A graph showing the relationship between inflation and unemployment . The theory states that unemployment can be reduced in the short run by increasing price level (inflation) at a faster rate. Conversely, inflation can be lowered at the cost of possibly increased unemployment and slower economic growth | | 23 |
| 5444325904 | Public Debt | all of the money borrowed by the government and not yet repaid, plus the accrued interest on that money; also called the national debt or federal debt |  | 24 |
| 5444325905 | Quantity Theory of money | a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate |  | 25 |
| 5444325906 | Rational Expectations Theory | the theory that people optimally use all the information they have, including information about government policies, when forecasting the future ex) Expectations formed by using all available information about an economic variable. | 26 | |
| 5444325907 | Real Business Cycle Theory | regards random fluctuations in productivity as the main source of economic fluctuations ex) claims that fluctuations in the rate of growth of total factor productivity cause the business cycle. | 27 | |
| 5444325908 | Short Run Phillips Curve | is the negative short run relationship between the unemployment rate and the inflation rate |  | 28 |
| 5444325909 | Stagflation | A period of falling output and rising prices |  | 29 |
| 5444325910 | Supply shocks | unexpected events that affect aggregate supply, sometimes only temporarily |  | 30 |
| 5444325911 | Supply side fiscal policy | Tax cuts will stimulate the economy and less government regulation (preferred by conservative republicans) ex) a plan designed to provide incentives to producers to increase aggregate supply | 31 | |
| 5444325912 | Taylor Rule | A rule developed by John Taylor that links the Fed's target for the federal funds rate to economic variables |  | 32 |
| 5444325913 | Velocity of money | the rate at which money changes hands |  | 33 |
| 5444325914 | Zero Bound | the lower bound of zero on the nominal interest rate. |  | 34 |
