AP Macroeconomics Section 6 (Modules 30-36) Key Terms (Krugman’s Textbook)

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cyclically adjusted budget balance
an estimate of what the budget balance would be if real GDP were exactly equal to potential output
government debt
accumulation of past budget deficits minus past budget surpluses
public debt
government debt held by individuals and institutions outside the government
debt-GDP ratio
government’s debt as a percentage of GDP
implicit liabilites
spending promises made by governments, which are effectively a debt despite the fact that they are not included in the usual debt statistics
The following conditions are characteristic of which monetary policy?
increased money supply
lower interest rates
higher investment spending raises income
higher consumer spending
The following conditions are characteristic of which monetary policy?
decreased money supply
higher interest rates
lower investment spending reduces income
lower consumer spendin
Taylor rule
rule for monetary policy setting the federal funds that takes into account both the inflation rate and the output gap
inflation targeting
method of setting monetary policy in which the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target
increase the money supply
Which of the following actions can the Fed take to decrease the equilibrium interest rate?
increase the money supply
increase money demand
decrease the money supply
decrease money demand
price stability
Which of the following is a goal of monetary policy?
zero inflation
price stability
increased potential output
decreased actual real GDP
monetary neutrality
concept in which changes in the money supply have no real effects on the economy
A 10% decrease in the money supply will change the aggregate price level in the long run by
less than 10%
more than 20%
have no real effect on the economy
Monetary neutrality means that, in the long run, changes in the money supply
cannot happen
have no real effect on the economy
increase real GDP
change real interest rates
increased aggregate demand
An increase in the money supply will lead to which of the following in the short run?
higher interest rates
decreased investment spending
decreased consumer spending
increased aggregate demand
lower real GDP
Which economic model/school of thought believe that sticky prices and wages slow the economy;s process of self-correction?
inflation tax
reduction in the value of money held by the public caused by inflation
cost-push inflation
inflation caused by a significant increase in the price of an input with economy-wide importance
demand-pull inflation
inflation caused by a significant increase in aggregate demand with economy-wide importance
profit made by a government by printing money, especially the difference between the face value of currency and their production costs
short run Phillips curve
curve which shows the negative relationship between the unemployment rate and the inflation rate
(abbreviation for) the unemployment rate at which inflation does not change over time
long run Phillips curve
curve which shows the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience
debt deflation
reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation
liquidity trap
situation in which conventional monetary policy is ineffective because nominal interest rates are up against the zero bound
Keynesian economics
Which school of thought (type of economics) focuses on the ability of shifts in aggregate demand to influence aggregate output in the short run?
Macroeconomic policy activism
use of monetary and fiscal policy to smooth out the business cycle
legitimized by Keynesian economics
Which school of thought or movement asserted that GDP will grow steadily if the money supply grows steadily?
discretionary monetary policy
type of monetary policy which involves changes in the interest rate or the money supply by the central bank to stabilize the economy
monetary policy rule
a formula that determines the central bank’s action, leaving the bank with little discretion
quantity theory of money
theory which emphasizes the positive relationship between the price level and the money supply
relies on velocity equation
velocity equation
Name the equation: M*V=P*Y
velocity of money
ratio of nominal GDP to the money supply
measure of the number of times the average dollar bill is spent per year
natural rate hypothesis
theory which states that, to avoid accelerating inflation over time, the unemployment rate must be high enough that the actual inflation rate equals the expected inflation rate
new classical macroeconomics
an approach to the business cycle that returns to the classical view that shifts in the aggregate demand curve affect only the aggregate price level, not the aggregate output
new Keynesian economics
Which school of thought (type of economics) believes that market imperfections can lead to price stickiness for the economy as a whole?
real business cycle theory
Which theory claims that fluctuations in the rate of growth of total factor productivity cause the business cycle?
The modern consensus is that monetary and fiscal policy are both effective in the _______ run.
The modern consensus is that neither monetary nor fiscal policy can reduce the unemployment rate in the ______ run.
Discretionary fiscal policy is considered generally __________ (advisable/inadvisable), except in special circumstances.
Which school of thought (type of economics) asserted that monetary policy affected only the aggregate price level, not aggregate output, and that the short run was unimportant?
Public debt
What kind of debt (public or private) may crowd out investment spending, which reduces long run economic growth?
Social Security
What are the U.S. government’s largest implicit liabilities?
Categories: Macroeconomics