Macro Unit 5 vocab

Question Answer
Fiscal year Runs from October 1 to September 30 and is labeled according to calendar year in which it ends
Public debt Government debt held by individuals and institutions outside of government
Debt-GDP ratio Governments debt as a percentage of GDP
Implicit liabilities Spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics
Target federal fund rate Desired level for federal funds rate
Expansionary monetary policy Monetary policy that increases aggregate demand
Contractionary monetary policy Monetary policy that reduces aggregate demand
Taylor rule for monetary policy Rule for setting federal funds rate that takes into account both the inflation rate and output gap
Inflation targeting Central banks sets and explicit target for the inflation rate and sets monetary policy in order to hit that target
Monetary neutrality Changes in money supply have no real effect on economy
Classical model of price level Real quantity of money is always at it's long run equilibrium level
Inflation tax Reduction in the value of money held by the public caused by inflation
Cost push inflation Inflation caused by significant increase in the price of an input with economy wide importance
Demand pull inflation Inflation caused by increase in aggregate demand
Short run Phillips curve Negative short run relationship between the unemployment rate and the inflation rate
Non accelerating rate of unemployment Unemployment rate at which inflation does not change over time
Long run Phillips curve Shows relationship between unemployment rate and inflation after expectations of inflation have had time to adjust to experience
Debt deflation Reduction of aggregate demand arising from increase in the real burden of outstanding debt caused by deflation
Zero bound Nominal interest rate can not go below zero
Liquidity trap Situation in which conventional monetary policy is ineffective because nominal interest rates are up against the zero bound
Monetarism Asserts that GDP will grow steadily if money supply grows steadily
Quantity theory of money Emphasizes the positive relationship between the price level and the money supply
Velocity of money The ratio of nominal GDP to the money supply. Measure of number of times the average dollar bill is spent per year
Political business cycle Politicians use macro policy to serve political ends
Rational expectations Individuals and firms make decisions optimally using all available information

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