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Stack #2057450

Section 6- Inflation, Unemployment, and Stabilization Policies

QuestionAnswer
The budget deficit almost always ___ when unemployment rate ___ rises, falls/rises, falls (direct relationship)
What are the main reasons of concern for repeated deficits? 1. Crowding out effect 2. future budget plans
How can government pay off its debt? 1. borrow from other banks 2. raise taxes, cut spending 3. printing money (risk of inflation)
Cyclically adjusted budget balance... an estimate of the budget balance if the economy when at full potential, separates effects of the business cycle
debt-GDP ratio.. widely used measure of fiscal health which remains stable or fall depending on growth of GDP over time
implicit liabilities.. spending promises made by government that are effectively a debt but not included in debt statistics (Social security, Medicare)
When money supply ___, the interest rate ___ increases, decreases
target federal funds... rate the Federal Reserve uses to impact money supply and interest rate
The aggregate demand curve shifts in the ___ direction as the money supply curve when the Fed conducts monetary policy same
monetary neutrality.. changes in the money supply have no real effect on the economy, only on LR-price level
inflation tax.. reduction in the value of money held by the public caused by inflation
cost push inflation AS shifts to the left
demand pull inflation AD shifts right
Three stages our economy is always in.. 1.Recessionary gap 2. Inflationary gap 3. Equilibrium
There is an ___ relationship b/w inflation and unemployment.. inverse
Frictional + Structural = 5% of natural rate of unemployment
Every time AD curve shifts right or left, we must show ___ along SRPC movement
Every time SRAS curve shifts left or right, we must show ___ along SRPC shift
A negative supply shock shifts the SRPC ___, and a positive supply shock shifts the SRPC ___ up, down
NAIRU... nonaccelaerating inflation rate of unemployment
What is the relationship between inflation and unemployment in the long run? There is no tradeoff b/w inflation and unemployment in the long run.
Government spending increases Draw the effect on Phillips curve
The price of crude oil and most sources of energy decreases Draw the effect on Phillips curve
Inflation expectations rise from 3% to 6% Draw the effect on Phillips curve
The Fed increases interest rates with contractionary monetary policy Draw the effect on Phillips curve
Inflation expectations fall from 5% to 2% Draw the effect on Phillips curve
The government increases income taxes Draw the effect on Phillips curve
Tornadoes strike the South and the Midwest destroying much of the nation's manufacturing ability Draw the effect on Phillips curve
Consumer confidence falls amid the news of political squabbling Draw the effect on Phillips curve
What is the definition of the long run in Macroeconomics? "flexible wage in price" period
Personal income taxes increase Draw the effect on AD-AS graph and Phillips curve
Cost push inflation AS shifts left
Demand pull inflation AD shifts right
Disinflation process of bringing down the rate of inflation that has become embedded in expectations
What is deflation and who is hurt/helped by it? Deflation is the falling aggregate price level. Lenders benefit under deflation since the real value of borrower's payments increase. Borrowers lose b/c the real burden of their debt increases. It reduces aggregate demand.
Quantity theory of money demonstrates positive relationship b/w price level and money supply: MV=PY
Discretionary monetary policy adjusting interest rate or money supply by central bank to stabilize economy
Governments that run large deficits can.. finance the deficit by printing money
Modern consensus in macroeconomics Prices are flexible in the long run but are likely to be sticky in the short run; in the long run, the macro economy will produce at the full employment level of output
monetary policy rule central bank uses a formula that determines its actions
Created by: nnaseem98
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