Intermediate Macroeconomics - Business Cycles and Monetary Policy

A set of vocabulary flashcards covering key concepts related to business cycles, monetary policy, inflation, and economic indicators in macroeconomics.

Business Cycle

Fluctuations in aggregate economic activity, where many economic activities expand and contract together in a recurring fashion.

Procyclical

Variables that move up during expansions and down during contractions.

Countercyclical

Variables that move down during expansions and up during contractions.

Acyclical

Variables whose ups and downs do not coincide with the business cycle.

Leading Indicator

A variable that reaches peak/trough before the turning points of a business cycle.

Lagging Indicator

A variable that reaches peak/trough after the turning points of a business cycle.

Coincident Indicator

A variable that reaches peak/trough at the same time as the business cycle.

NBER

National Bureau of Economic Research, the organization responsible for dating U.S. business cycles.

Inflation

A general increase in prices and fall in the purchasing value of money.

Stabilization Policy

Government policies aimed at maintaining economic stability through managing demand to influence the economy's output.

Short-run Aggregate Supply (SRAS) Curve

Shows the relationship between the inflation rate and the quantity of output that firms are willing to produce in the short run.

Long-run Phillips Curve (LRPC)

Illustrates the trade-off between inflation and unemployment in the long run, which is vertical.

Okun's Law

The relationship between unemployment and output, suggesting that for every 1% increase in unemployment, a country's GDP will be an additional roughly 2% lower.

Taylor Principle

The principle that, to control inflation, the nominal interest rate should be raised by more than any increase in inflation.

Quantitative Theory of Money

Theory that relates the quantity of money in an economy to the level of prices of goods and services.

Adaptive Expectations

A theory where people form their expectations of future inflation based on past experiences.

Rational Expectations

The hypothesis that individuals form forecasts about the future based on all available information, and do not systematically err.

Self-Correcting Mechanism

The process by which the economy adjusts back to long-run equilibrium after a short-term deviation.

Demand Shock

An event that causes a sudden change in demand for goods and services in an economy.

Supply Shock

An unexpected event that changes the supply of a product or commodity, resulting in a sudden change in its price.

Fiscal Stimulus

An increase in government spending or a decrease in taxes meant to encourage economic growth.

Monetary Policy

Central bank actions that manage money supply to influence interest rates and achieve macroeconomic stability.

Aggregate Demand (AD) Curve

A curve that shows the relationship between the overall price level in an economy and the quantity of goods and services demanded.

Aggregate Supply (AS) Curve

A curve that shows the total output of an economy at different price levels in the short run and long run.

Project of Full Employment

An economic target that strives for a rate of employment that does not cause inflation.

Inflation Targeting

A monetary policy where a central bank publicly commits to a specified level of inflation rate.

Nominal Interest Rate

The interest rate before adjustment for inflation.

Real Interest Rate

The nominal interest rate adjusted for inflation, reflecting the real purchasing power of the interest payments.

Output Gap

The difference between actual output and potential output in an economy.