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AP Macro Unit 5
| Term | Definition |
|---|---|
| Fiscal year | runs from October 1 to September 30 and is labeled according to the calendar year in which it ends |
| public debt | government debt held by individuals and institutions outside the government |
| debt-GDP ratio | the government's 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 funds rate | a desired level for the federal funds rate, uses open-market operations to achieve this target |
| expansionary monetary policy | monetary policy that increases aggregate demand |
| contractionary monetary policy | monetary policy that reduces aggregate demand |
| Taylor rule for monetary policy | a rule for setting the federal funds rate that takes into account both the inflation rate and the output gap |
| inflation targeting | when the central bank sets an 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 effects on the economy |
| classical model of price level | the real quantity of money is always at its long-run equilibrium level |
| inflation tax | a reduction in the value of money held by the public caused by inflation |
| cost-push inflation | inflation that is caused by a significant increase in the price of an input with economy-wide importance |
| demand-pull inflation | inflation that is caused by an increase in aggregate demand |
| short-run Phillips Curve | the negative short-run relationship between the unemployment rate and the inflation rate |
| debt deflation | the reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation |
| zero bound | bound on the nominal interest rate that cannot go below zero |
| liquidity trap | a 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 the money supply grows steadily |
| quantity theory of money | emphasizes the positive relationship between the price level and the money supply. It relies on the velocity equation (M x V = P x Y |
| velocity of money | the ratio of nominal GDP to the money supply. It is a measure of the number of times the average dollar bill is spent per year |
| political business cycle | results when politicians use macroeconomic policy to serve political ends |
| rational expectations | the view that individuals and firms make decisions optimally, using all available information |
| non accelerating inflation rate of unemployment (NAIRU) | the unemployment rate at which inflation does not change over time |
| long-run Phillips Curve | the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience |
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