Macroeconomics 5.1, 5.2, 5.3, 5.4, 5.5

National Debt

Total accumulated amount of money that the federal government has borrowed to cover the outstanding balance of expenses incurred over time

Fiscal Year

Runs from october 1 to september 30 and are labeled by the calendar year in which they end.

Debt-GDP ratio

The government’s debt expresses as a percentage of its GDP

Implicit Liabilities

Spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics

Budget balance

The difference between the government’s tax revenue and its spending, both on goods and services and on government transfers, in a given year

Debt

Accumulation of budget deficits

Cyclically adjusted budget balance

Estimate of what the the budget balance would be if real GDP were exactly equal to potential output

Target Federal funds rate

A desired level for the federal funds rate

Expansionary monetary policy

Monetary policy that shifts the AD curve to the right

Contractionary monetary policy

Monetary policy that shifts the AD curve to the left

Taylor rule

A rule setting the federal funds rate that takes into account both the inflation rate and the output gap.

Inflation targeting

Announcing the inflation rate that needs to be achieved by the Fed and set ting olucy in an attempt to hit that target.

Monetary neutrality

Changes in the money supply have no real effects in the economy, only change in Price level

Inflation Tax

A reduction in the value of money held by the public, by printing money to cover its budget deficits and creating inflation

Cost-pull inflation

When the aggregate supply is pushed to the left causing the price level to increase

Demand-pull inflation

When aggregate demand shifts to the right, causing price level to go up

Short-run Philips Curve

Illustrates the inverse relationship between inflation and unemployment in the short run

Long-run Philips Curve

A vertical line at the natural rate of unemployment, indicating there is not trade off between inflation and unemployment in the long run

Non accelerating inflation rate of unemployment

The unemployment rate at which inflation does not change over time

Debt deflation

Theory explaining recession and depression as a result of the real value of debt increasing due to deflation

Zero bound

Nobody would lend money at a negative rate of interest bc they could do better by simply hoping cash, this bounds the interest rate to zero. This limits the effectiveness of monetary policies

Liquidity trap

A situation in which conventional monetary policy to fight a slump-cutting interest rates- can’t be used because nominal interest rates are up against the zero bound.

Stabilization policy

Use of government policy to reduce the severity of recessions and rein in excessively strong expectations

Social Darwinism

Giving assistance to poor people and social programs like welfare programs are immoral

Adam Smith

Founder of modern economics, a scottish philosopher

Communism

Advocating collective ownership of the means of production

Classical economics

Keynesianism

Socialism

Allow for private property and markets, but also have government ownership of industry significant regulation and public programs like universal health care.

Austrian School of Economics

Heavy state involvement never produced the results it promised and regulation and government involvement is a problem rather than a solution

Chicago School of Economics

Monetarism

Focused on price stability and argue the money supply should be increased slowly and predictably to allow for steady growth.

Trickle-down economics (supply side)

Advocated for deregulation and cutting taxes, especially corporate taxes

Austerity

Raising taxes and cutting government spending to reduce debt

Social insurance

Discretionary monetary policy

Changes in interest rates or the money supply by the central bank in order to stabilize the economy

Monetary policy rule

A formula that determines the central bank’s actions and leaves it relatively little discretion

Quantity theory of money

Relies on the concept of the velocity of money, the ratio of nominal GDP to the money supply

Velocity of money

A measure of the number of times the average dollar bill in the economy turns over per year between buyers and sellers

New classical macroeconomics

Return to the classical view of shifts in the aggregate demand curve affect only the aggregate price level not aggregate output

Rational expectations

A theory originally introduced by John Muth, the view that individuals and firms make decisions optimally, using all available information

New keynesian expectations

Argues that market imperfections interact to make many prices in the economy temporarily stick

Productivity

Refer either to output per worker or, in some cases, to output per hour

Aggregate production function

• Shows how productivity depends on the quantities of physical capital worker and human capital per worker as well as the state of technology

• Allows economists to disentangle the effects of these three factors on overall productivity

Diminishing return to physical capital

When the amount of human capital per worker and the state of technology are held fixed, each successive increase in the amount of physical capital per worker leads to a smaller increase in productivity

Productivity curve

Research and development

Infrastructure