macroeconomics exam 3 2026

Anchoring Inflation Expectations

Keeping peoples expectations of inflation in line with the central banks goals

Asset Price Bubble

Unsustainable rapidly rising prices of some type of asset

Automatic Stabilizer

Any government program or policy that will counteract the business cycle without any new government action

Cost-Push Inflation

Inflation caused by increases in the cost of producing goods and services

Crowding Out

The offsetting affect on private expenditures by the government’s sale of bonds to finance expansionary fiscal policy. /

The offsetting of a change in government expenditures by a change in private expenditures in the opposite direction

Crowding Out

Offsetting increased government spending can reduce private sector investment.

Demand-Pull Inflation

Inflation caused by increases in the demand for goods and services

Extrapolative Expectations

Expectations that a trend will accelerate

Fiscal Austerity

increasing taxes (government revenue) and decreasing spending (government expenses) to reduce size of deficit

Liquid

Having assets that can be easily converted into cash and money

Long-Term Unemployed

Unemployed individuals that have been unemployed for 27 weeks or longer

Maturity

The length of time it takes to pay off the principal value

Persistant Inflation

Elevated inflation that is NOT expected to abate in short-term

Reservation Wage

The lowest wage a person needs to receive to accept a job

Reserve Army of Labor

The idea that unemployed and underemployed workers stand ready to provide additional labor should capital need it

Reserve Army of Labor

Concept that unemployed and underemployed workers stand ready to provide labor if capitals needs it

Ricardian Equivalence Theorem

The theoretical proposition that deficits do not affect the level of output in the economy because individuals increase their savings to account for expected future tax payments to repay the deficit.

Ricardian Equivalence Theorem

Theory that financing government spending out of current/future taxes will have equal effects on overall economy.

Sellers’ Inflation

Inflation caused by firms with market power raising their prices because they expect their competitors to also raise their prices

Solvent

Having sufficient assets to cover long-term liabilities

Stagflation

The combination of high accelerating inflation and high unemployment

Target Rate of Unemployment

The lowest sustainable rate of unemployment that policy makers believe is achievable given existing demographics and the economy’s institutional structure.

Target Rate of Unemployment

Unemployment rate at which inflation remains stable

Transitory Inflation

Raised inflation expected to be short-term and abate without need for significant macroeconomic policy intervention