Unit 5: Long-run Consequences of Stabilization Policies

Loanable Funds Market

the market where savers supply funds for loans to borrowers

Private Saving

saving by households and businesses

Public Saving

saving by the government (tax revenue minus government spending)

National Savings

public + private savings

Capital Inflow

the net inflow of funds into a country

Capital Outflow

domestic money invested abroad

Net Capital Inflow

net inflow-net outflow

Private Investment

spending by firms using borrowed funds

Government Borrowing

the amount of funds borrowed by the government in the financial markets

Phillips Curve

a curve that shows the short-run trade-off between inflation and unemployment

Velocity of Money

the rate at which money changes hands

Quantity Theory of Money

M x V = P x Y

M = Money Supply; V = Velocity of Money; P = Price Level; Y = Quantity of Output

Crowding Out

a decrease in investment that results from government borrowing driving up interest rates

Infrastructure

Fundamental facilities and systems serving a country, city, or area, as transportation and communication systems, power plants, and schools

Education (in terms of Long-run Growth)

government spending on education improves labor force productivity

Supply-side Fiscal Policy

involves the use of government spending and taxes to affect the production (supply) side of the economy