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AP Macro Unit 5

TermDefinition
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
Created by: sdd0823