Chapter 14: Long-Run Consequences of Stabilization Policies

Rational expectations

Rational expectations

theory that people learn to anticipate government policies that influence the economy, making the policies ineffective.

Phillips curve

shows inverse relationship between inflation rate and unemployment.

National debt

total amount of money that the federal government owes.

Deflation

sustained decrease overall price level.

Budget deficit

federal government spending- tax collections.

Monetary inflation

when prices increase due to oversupply of currency.

Inflation

sustained increase to overall price level.

Monetary inflation

when prices increase due to oversupply of currency

Phillips curve

shows inverse relationship between inflation rate and unemployment

Rational expectations

theory that people learn to anticipate government policies that influence the economy, making the policies ineffective

Inflation

sustained increase to overall price level

Deflation

sustained decrease overall price level

National debt

total amount of money that the federal government owes

Ricardian Equivalency theory

deficit financing no different from tax financing

Crowding out

decrease in real investment due to higher interest rates from government purchases