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Stabilization Function
Attempts by government to minimize fluctuations in overall macroeconomic activity.
Fiscal Policy
Government policies related to spending and revenue generation.
Monetary Policy
Government policies which determine a nation’s Money Supply.
The General Theory of Employment, Interest and Money
A 1936 book by John Maynard Keynes that critiques traditional macroeconomic thought and argues that markets can fail to achieve full employment.
Expansionary Fiscal Policy
Increases in government spending or decreases in taxes aimed at stimulating overall economic activity.
Contractionary Fiscal Policy
Decreases in government spending or increases in taxes aimed at dampening overall economic activity.
Crowding Out
Decreases in private spending that occur following increases in government spending.
Money Supply (M)
The amount of money in circulation in an economy.
Velocity of Money (V)
The number of times a dollar is used in market transactions in a single year.
Overall Price Level (P)
The average of all prices of goods/services traded.
Aggregate Level of Output (Q)
A measure of the real quantity of goods/services produced.
Equation of Exchange (MV = PQ)
An identity that relates the money supply, velocity of money, overall price level, and aggregate level of output.
Monetarism
An economic theory arguing that economic fluctuations depend more on Monetary Policy than on Fiscal Policy.
Loanable Funds Market
The collection of markets in which lenders and borrowers interact.
Expansionary Monetary Policy
An increase in the money supply that provides short-term stimulus to the economy.
Contractionary Monetary Policy
A decrease in the money supply that dampens overall economic activity.
Central Bank
An entity that has the ability to alter the money supply of an economy.
Fractional Reserve Banking System
A system where commercial banks are required to retain only a portion of the money they accept as deposits.
Open Market Operations
Buying and selling of U.S. Treasury debt securities to alter the money supply.
Inflation
A general increase in prices and fall in the purchasing value of money.
Note 
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